According to the White House, up to 8 million people could receive automatic debt relief under President Joe Biden’s historic student loan forgiveness plan.
Most people who have federal student loans will be qualified for some forgiveness, up to $20,000 if they received a Pell Grant, a type of financial aid available to low-income undergraduate students. Only those making less than $125,000 annually, married couples, or heads of households making less than $250,000 are eligible for aid.
Those who have qualified for automatic loan cancellation under the U S. Since the Department of Education already has income information on record, it can confirm eligibility without needing to wait for an application.
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Heres what you need to know.
Who qualifies for the automatic loan cancellation?
The Education Department intends to use information from the Free Application for Federal Student Aid, or FAFSA, as well as from income-driven repayment plans to automatically verify certain borrowers’ income data for tax years 2021 or 2020 (whichever is lower).
Each year, families must complete the FAFSA to apply for financial aid for college, and income-driven repayment plans enable borrowers to pay back their loans in a more affordable manner by capping their monthly payments at a percentage of their income. Both require proof of income, but timing is crucial here because the government only cares about earnings from 2020 or 2021.
According to higher education expert Mark Kantrowitz, you might be eligible for the automatic cancellation if you recertified your earnings on an income-driven repayment plan in 2021 or 2022. You must have submitted the FAFSA for the 2022–2023 academic year, he added.
Should I still apply for relief if the government has my income data?
Yes. When the application launches, which the Education Department claims will occur by “early October,” experts advise making a formal request even if you believe the government already has your income information. “.
According to Kantrowitz, “there is a risk of hiccups with any new government program, so it is best to apply just in case.”
How quickly will forgiveness occur?
Within six weeks, borrowers could observe the loan cancellation on their accounts, according to Kantrowitz.
When they receive the forgiveness, “they should also receive a notice from the loan servicer, showing how it was applied to their loans,” Kantrowitz advised.
Was my income below the limits?
Borrowers who make less than $125,000 annually, married couples, or household heads making less than $250,000 will only be eligible for the relief.
Verify from a review of your most recent tax returns that your income was below those limits in 2020 or 2021 (either will do). The so-called adjusted gross income, or AGI, of individuals will be taken into account by the Education Department; this figure may differ from their gross salary.
To confirm your AGI for 2020 and 2021, look for Line 11 on the front page of your tax return, known as Form 1040.
What’s next after cancellation?Thana Prasongsin | Moment | Getty Images
According to certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York, a smaller monthly student loan payment “is an opportunity to re-examine fundamentals like cash flow.”
Previously used each month to reduce debt, he said, “that money can now be used to increase savings or investment.”
Do you automatically get student loan forgiveness?
If they made less than $125,000 in 2020 or 2021 as a single tax filer, or $250,000 as a head of household or married filing jointly, they are all eligible for $10,000 in forgiveness.
How do I know if my student loans will be forgiven?
You must have federal student loans and make less than $125,000 (or $250,000 per household) annually to be eligible for forgiveness. Borrowers who fit that description may be eligible for a $10,000 debt cancellation. You may be eligible to receive up to $20,000 in forgiveness if you were also awarded a Pell Grant during your education.
How long will it take for the student loan forgiveness to be processed?
Top administration officials predicted a four- to six-week turnaround between the time a borrower submits an application and when they receive student loan forgiveness. Applications will be processed on a rolling basis through 2023.
How do you qualify for automatic loan forgiveness?
Adjusted gross income, or AGI, for either 2020 or 2021 is the primary prerequisite for forgiveness. The joint filing threshold is $250,000, while the single filing threshold is $125,000.