How to Qualify and Apply for Biden’s Student Loan Forgiveness Plan – NBC Chicago

Millions of people who owe money in federal student loans will have those debts forgiven or canceled under a plan announced by President Joe Biden, but not everyone will qualify and some may have to make a request to receive their funds.

Biden’s student loan forgiveness program announced Wednesday aims to provide $10,000 in student debt forgiveness to millions of Americans. But for some, this amount is even higher.

Here’s what to know about who qualifies for student loan forgiveness and whether you’ll need to apply for it:

Who is eligible for student loan forgiveness?

If your student loan was funded by the federal government, you may be eligible for a forgiveness. Private loans are not currently eligible for the forgiveness plan.

Federal loans have usually been offered to you by the federal government through your school after you complete a Free Application for Federal Student Aid, or FAFSA. Private loans were obtained through other external lenders, such as a bank or credit union.

To qualify for the rebate, the borrower must earn $125,000 or less as an individual or $250,000 if married or head of household.

Up to $10,000 can be forgiven, or up to $20,000 if you received a Federal Pell Grant while in college.

Created by the Higher Education Act in 1965 to promote access to education, the Federal Pell Scholarships are special scholarships reserved for undergraduates and certain other students with the greatest financial need. Grants generally do not need to be repaid, but they often do not cover the full cost of college. Beneficiaries therefore take out additional loans.

About 27 million Pell Grant recipients will now be eligible for loan forgiveness.

If you are not sure if you have received a Federal Pell Grant, you can confirm it in several ways:

  • Review any financial aid award letters or emails administered by the Office of Federal Student Aid that describe your “FAFSA” award.
  • See the full history of federal student aid on the Federal Student Aid website. This includes their Pell Grant story. You will find this information on your aid summary page once you log in to studentaid.gov with your FSA ID.

In Illinois, about 1.52 million student borrowers hold $57.3 billion in direct student loans, according to Department of Education data.

So far under the plan, 31% of federal student loan borrowers in Illinois have debt of $10,000 or less, and about 42% of federal student loan borrowers in the state have between 10 $000 and $40,000 debt.

Under current criteria, that means more than 70% of federal student loan borrowers in Illinois could see more than 25% of their debt forgiven, reports the Illinois Student Aid Commission.

The commission notes, however, that it is not clear whether such aid will be given to students who take out loans now or in the future.

Students taking out loans today from July 1 “probably should not assume that amounts will be forgiven in the future,” the report said.

How do I apply for student loan forgiveness?

About 8 million people will be eligible to automatically receive aid because the US Department of Education already has their current income information, the administration said.

If the agency doesn’t have information about your current income or you’re not sure if it does, you’ll need to fill out an application. This application is not yet available, but will be in the coming weeks, the administration said in its announcement.

To be notified by the US Department of Education when the application is opened, sign up on the Department of Education’s subscription page.

What if I have already paid off my student loans, will I see relief?

Debt cancellation should only apply to people who currently have student debt. But if you have voluntarily made payments since March 2020, when payments were suspended, you can request a refund for those payments, according to the Federal Office for Student Aid. Contact your loan officer to request a refund.

Will the student loan repayment freeze be extended?

The payment freeze will be extended one last time, until December 31. The freeze began in 2020 as a way to help people in financial difficulty during the COVID-19 pandemic and it has been extended several times since. It was due to expire on August 31.

Interest rates will remain at 0% until repayments begin. Under an earlier extension announced in April, people who were in arrears before the pandemic will be automatically brought into good standing.

Are there other repayment options offered under Biden’s plan?

The Ministry of Education has proposed a repayment plan that would cap monthly payments at a maximum of 5% of the borrower’s discretionary income, up from 10% currently. Borrowers will need to apply for the repayment plan if approved, which can take a year or more.

For example, under the proposal, a single borrower earning $38,000 a year would pay $31 a month, according to a government press release.

The amount considered non-discretionary will also be increased, with the ministry not specifying by how much.

Discretionary income generally refers to what you have left over after covering necessities like food and rent, but for student loan repayment purposes it is calculated using a formula that takes into account the difference between the borrower’s annual income and the federal poverty level, as well as family size and geographic location.

“The difficult thing about income-based repayment is that it doesn’t take into account your other debts, such as paying your rent,” said Kristen Ahlenius, financial adviser at Your Money Line, which offers training in financial literacy. “If someone is living paycheck to paycheck and their rent takes half their paycheck and their car payment takes the other half, they have to choose. Unfortunately, the income-contingent reimbursement does not take this into account, but it is an option.

Student Debt Relief offers a calculator to help you determine your Discretionary Income.

NBC Chicago

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