Student loan forgiveness process will start soon. Here’s what borrowers need to know
Student debt relief is expected to be available to millions of Americans as soon as early October.
The Department of Education on Thursday, Sept. 29, sent borrowers an update on the forgiveness process, detailing how relief will work and promising weekly updates as information becomes available.
In August, President Joe Biden announced that he would be canceling up to $20,000 per borrower for individuals who meet a certain income threshold, and he extended the student loan payment pause through the end of 2022.
Borrowers who make less than $125,000 annually will see up to $10,000 in debt canceled. Pell Grant recipients can get up to $20,000 in relief. For households, income must be less than $250,000. Dependent students will qualify depending on their parents’ income.
In September, Congress voted to approve legislation that would clear the way for divorced couples to qualify for relief, too. President Biden has not yet signed the bill into law, but he has expressed his support for the action.
If you are eligible for student loan forgiveness, here’s what you should know about the process.
How to apply for loan forgiveness
The Department of Education has not yet announced the exact date that applications for loan forgiveness will be released.
The “short online application” will be launched in October, according the department’s Sept. 29 email. Applicants won’t need to upload any documents or use their Federal Student Aid ID to apply.
The department already has the necessary income information from some borrowers, so up to 8 million borrowers won’t need to apply, according to the department. These borrowers will only need to take action if they want to opt out of debt relief.
Borrowers who don’t need to apply will be notified by email and text message, if they signed up for alerts, about their status.
When to apply for debt relief
Experts suggest that borrowers who need to apply for relief do so as soon as possible.
Six states filed a lawsuit against the Biden administration’s student loan cancellation program Sept. 29, according to a news release from Doug Peterson, Nebraska’s Attorney General. The states participating in the challenge are Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina.
If borrowers apply early enough, they might be able to get relief before any lawsuits can disrupt forgiveness, “even if the courts rule against the Biden administration,” Mark Kantrowitz, a higher education expert, told CNBC.
Borrowers should plan to apply for forgiveness before mid-November to ensure they will receive their relief by the end of the year, according to the Education Department. After borrowers apply, it will be about six weeks before they see relief.
If borrowers apply by Nov. 15, they can get relief before debt payments resume Jan. 1, 2023, which may mean lower payments or no payments at all, according to Kantrowitz.
“If the forgiveness will cause your debt to be completely erased, you can avoid having to make any payments on your student loans,” Kantrowitz said.
Will some loans get priority over others?
If borrowers hold more than one loan in a program type, the Department of Education says it will apply relief in the following order:
- Loans with the highest statutory interest rate
- If same interest rate, unsubsidized loans first
- If same interest rate and subsidy status, most recent loan first
- If same interest rate, subsidy status and date, the loan with the lowest combined principal and interest balance first
What happens after applying
After borrowers submit their application, the department says it will review eligibility for relief and work with loan servicers to process relief.
The department will contact borrowers if they need any additional information.
Relief will take about six weeks after applying.
This story was originally published September 29, 2022 at 2:08 PM with the headline "Student loan forgiveness process will start soon. Here’s what borrowers need to know."
