I dunno if you’ve heard, but the Biden-Harris White House announced some student loan forgiveness this week!
Today we’re going to look at who’s eligible, some hacks and highlights that aren’t getting enough attention, and some common misconceptions about this new program.
Who qualifies for student loan forgiveness?
You qualify for student loan forgiveness if you’re a single tax filer and you make less than $125,000.
If you file as married or head of household, you can make up to $250,000 as a household and still qualify.
Single moms: Pay attention. You likely qualify for the $250,000 income limit.
You don’t have to be married to qualify for the $250,000 income limit. You qualify for this increased cap if you file as head of household.
This is pretty amazing, as it appears to mean that many single moms (and dads!) can qualify with a higher individual salary. As long as they’re filing head-of-household.
It could also help families who may have other nontraditional family structures.
Do I qualify if I have private student loans?
No. This program only applies to those with federal student loan debt.
How much loan can I get forgiven?
This program gives you $10,000 in forgiveness if you did not receive a Pell grant while in college. It gives you $20,000 in forgiveness if you did receive a Pell grant in college.
Do I get a refund if I owe less than ten grand?
If you owe $9,000, you won’t get a $1,000 refund. You’ll just get $9,000 forgiven.
And if you qualify for $20,000 forgiveness?
You’ll still only get $9,000 forgiven. No refunds.
Though there is a hack if you’ve made any payments during the pandemic. Read on, dear reader. We’ll cover it in-depth in just a minute.
Why do Pell grant recipients get more forgiveness?
Pell grants are awarded based on income. That means the recipients have an economic disadvantage compared to non-Pell grant recipients. Essentially, their starting line is further back. They have to do more to achieve just as much as their non-Pell-grant-receiving peers.
While Pell grants can cover the entire cost of most community colleges, they do not come close to covering the costs of your average bachelors-degree-granting school. State schools tend to have a much smaller gap in funding than private schools, but your mileage may vary depending on institutional financial aid opportunities.
That means even if you receive a Pell grant, you’re probably going to have to take out student loans. In fact, you might be more likely to take out student loans because you’re less likely to have financial backing from your family.
Because you don’t have financial backing, you’re more likely to need a job or other means of putting food on the table. You might not only be working to feed yourself; you could be a nontraditional student who has to feed others, or you might be a traditional student who still needs to send some money home to help your family.
This extra stress makes it less likely that you’ll graduate school with a degree.
Which means there’s a disproportionate amount of Pell grant receipients out there with student debt and nothing to show for it. Without a degree, your income potential is stunted. Not only do you have debt and no degree — you also have to pay off that debt on less income.
So Pell grant recipients get more forgiveness. Deservedly.
How do I find out if I got a Pell grant?
Unless you were a nontraditional student, this all likely happened when you were 17. You probably filled out the FAFSA using your parents’ income information.
And let’s be real: You probably didn’t fill out that FAFSA. It was probably your parents handling the paperwork. You might not even remember if you got a Pell grant.
Luckily, it’s real easy to figure out if you got a Pell grant. Just visit StudentAid.gov. Then, click on ‘My Aid.’
There will be graphs and data that pop up showing any loan balance, along with where your aid came from. If you got a Pell grant, it’ll show up here.
How do I claim my student loan forgiveness?
For a lucky few, you won’t have to do anything. If the Department of Education (ED) has all your ‘pertinent’ information, including income information, it should be applied automatically.
But ED is also saying that if you’re ‘unsure’ if ED has your income information, you better assume the process won’t be automatic.
Also, if you’re very sure they don’t have your income information, you need to know that an application will be necessary.
How can I get an application?
Right now, you can’t. The application hasn’t gone live yet.
ED is fervently encouraging people to sign up for its Federal Student Loan Borrower Updates subscription. This is where they’ll be sending out information as soon as the application is available.
When will I actually get my student loan forgiveness?
Good question. We don’t actually know yet. We only know that the application will be available sometime before December 31, 2022.
I paid off my student loans during the pandemic and now I’m pissed.
Ohmigosh I have such good news for you.
If you made any payments on federal student loans during the pandemic (which is still happening, to help you understand the timing,) you can reclaim it.
This was a rule that preexisted Biden’s forgiveness announcement, and turns out to open up a nice little hack: Request a refund of your pandemic payments, get your money back, and watch your balance go up from $0. Then have the $10,000/$20,000 forgiveness wipe out the debt again.
Here’s how to request a refund of your federal student loan payments made during the pandemic.
HINT: It requires getting in touch with your student loan servicer. There is paperwork involved. Be prepared.
Be prepared for a bumpy ride with student loan repayment refunds and forgiveness.
Even before the forgiveness announcement, there were some reported back logs in these refund requests.
And we’re not totally sure when, exactly, forgiveness will be applied.
That means there is a potential scenario where forgiveness is applied before you get your refund. This could be a bad thing if the government doesn’t come back and try to give you forgiveness again after the refund is applied.
Let’s hypothetically say you got a $10,000 refund, but it wasn’t awarded to you until months down the line, after the government had already checked to see if they owed you forgiveness. Then, they don’t come back and try to apply forgiveness to your account a second time. It could end up looking like you still owe $10,000 when repayments start up again.
Fingers crossed that they’re already working on a mechanism to remedy this potential scenario.
But the two programs weren’t released in tandem. And it’s the government. So I’m skeptical.
If you go this route, at some point, you might have to advocate to get any remaining balance forgiven. That doesn’t mean you shouldn’t do it. It just means be prepared — both mentally and in terms of your paperwork.
Other announcements that aren’t forgiveness
There were a bunch of other important bits of student loan news that came out alongside the official forgiveness announcement. Let’s look into them.
The changes to IBR aren’t real yet.
Ten thousand to twenty thousand in forgiveness is very, very real.
But in the same document, the Biden-Harris administration included some proposals for reform to the Income-Based Repayment (IBR) program.
Those are not yet real.
They’re just proposals. Just something the White House wants to see happen.
So even though the proposals are pretty rad, I’m not going to spend a lot of time talking about them. Because they’ll probably change at least a little bit over the coming months as they go through the public comment process.
Student loan payments are coming back. For real this time. Maybe.
The White House swears this is the final extension of the student loan payment moratorium. For real this time. Pinky promise.
You do not have to start making payments on September 1 anymore. The new expiration date is December 31, 2022, which means payments will resume in January.
To be fair, they have said this is ‘the last time’ before. But this time they may actually mean it. Because Biden is using the resumption of repayments as an argument that this plan is inflation-neutral.
Oh, boy. Here we go.
Does student loan forgiveness cause inflation?
Inflation happens when there are too many people willing to pay top dollar for too few goods.
One of the ways inflation can get worse is if people have too much discretionary spending.
For student loan forgiveness to have any chance of making inflation worse over the next couple years, we would have to assume people were currently making student loan payments.
But they haven’t been. For two and a half years.
People aren’t magically going to get $500 extra in their pocket every month now. Their budget is just going to stay the same.
Any damage that would be caused by the ‘extra’ discretionary income already happened way back in 2020.
Let’s say you don’t qualify for forgiveness. You’ll have to start making payments in January. That’s $500 less you have to spend per month. The White House is arguing that this will actually help combat inflation, offsetting any potential ‘problems’ with forgiveness.
There could be an argument that forgiveness would contribute to inflation over the long-term, as it does cause a deficit compared to the money the government would have had if it had taken it from low- to middle-income private citizens via student loan repayments.
By the same token, the Tax Cuts and Jobs Act of 2017 added a massive long-term deficit to the American government while cutting taxes for only the wealthiest Americans.
Please note: I am not an economist. Here’s where you can find a real economist.
That sweet PSLF deal is changing.
Public Service Loan Forgiveness (PSLF) is an amazing yet frustrating program that allows you to have your federal student loan debt forgiven after ten years of on-time minimum payments — but only if you have the right job, the right type of loan, and were on the right repayment plan.
A lot of people were horrified when the first round of applicants in 2017 found out that they did not, in fact, qualify because they had been on the wrong repayment plan or had the wrong type of loan.
They had been banking on this program as they planned out and made career moves over the past 10 years.
For that reason, during the pandemic the government said you could temporarily change your eligibility by:
- Applying to get past late payments or payments that were less than the minimum due counted towards PSLF.
- Consolidating your loans into the right type of loan to qualify for PSLF, then get past payments under the old loan structure counted towards your 120 minimum payments.
- Applying to get payments that were made under the wrong payment plans counted towards PSLF.
You can apply for this phenomenal program here. And do it quick because as a part of the forgiveness announcement, the Biden administration announced the end date for this program.
You have to get your application in no later than October 31, 2022.
This is extra important with payments restarting in January, and because not everyone will have all of their debt wiped out by the $10,000/$20,000 in forgiveness.
Eighty-seven percent of this forgiveness will be going to individuals who make under $75,000/year.
Let’s break down what that means.
It does not mean that 87% of the people who get forgiveness will be making under $75,000/year. Part of the reason such a large percentage of the forgiveness is going to this demographic is because Pell grant recipients are more likely (though not assuredly) to be lower-income earners. Because of all the reasons we outlined above.
And Pell grant recipients get double the forgiveness.
Another reason for this framing is that it’s accounting for individual income, so a household could presumably make between $75,000 and $250,000 per year, but the person who is getting their loan forgiven contributes less than $75,000 of the total household income. That person would still be included in the 87% the way the numbers are framed.
But we also can’t ignore that a huge reason that so much forgiveness is going to this demographic is that more than half of American households make less than $75,000/year total.
According to the Census Bureau, median household income was $67,521 in 2020, the last year for which data is currently available. That means 50% of households made between zero and $67,521, and the other half made between $67,521 and infinity.
Part of the reason so much forgiveness is going to lower-income households is because such a large portion of our population has to live on less.
Income inequality is visceral American problem.
Even when you’ve got some college education at your back.