Student Loan Forgiveness Applications Now Available Online
The US Department of Education has started accepting student loan forgiveness applications on a trial basis, but said access to the forms would be “periodic”.
The “beta test” started on Friday evening, but the form was not available and a notice posted at https://studentaid.gov/debt-relief/application asked borrowers to “come back soon”. On Saturday morning, the form was available again.
The ministry said it would make a final version of the form available by the end of the month. If you manage to access the application during the beta test, you will not have to apply again once the final form is released.
The one-time debt relief programthat the White House announced in august, will offer up to $10,000 in federal loan forgiveness to borrowers who meet income limits. For borrowers who meet income limits and have received a Pell Grant, the government will forgive up to $20,000 in federal student loans.
To qualify, your adjusted gross income must have been less than $125,000 in 2020 or 2021 as a single filer, or less than $250,000 as a couple.
Relief will be available to you automatically if you have previously reported your income to the Ministry of Education, for example, under an income-tested repayment plan. Otherwise, you will need to submit an application form.
The ministry also said the forms, which are due by the end of 2023, will be simple to complete. And the version unveiled this week is exactly that, asking for so little information you could fill it out on a smartphone in minutes.
The app only asks for your name (or old name, if that’s on your loan records), social security number, date of birth, phone number, and email address. Instead of asking for copies of tax returns or other financial documents, the form simply asks you to certify, under penalty of perjury, that you met the program’s income limits.
Specifically, you must certify that at least one of the following is true in 2020 or 2021:
• You have made less than the income required to file federal taxes;
• You were a single filer or you filed a return separately from your spouse and you earned less than $125,000;
• You were a married, joint-filer, head of household, or eligible widow or widower and you earned less than $250,000.
The form says the ministry may ask you to submit proof of your income, which you will need to do by March 31, 2024.
One wrinkle not mentioned on the form is that if your parents listed you as a dependent on their federal income tax form, their income, not yours, can determine whether you qualify for one-time relief. According studentaid.gov“If you were enrolled in school as a dependent student for financial aid purposes between July 1, 2021 and June 30, 2022, your eligibility is based on parental income.”
If you fall into this category, the ministry said, it will contact you after it receives your application form for your parent to submit a “parents income form”.
Which loans are eligible
The forgiveness only applies to loans issued or held by the federal government. It does not extend to loans issued or held by private lenders.
Generally, if payments and interest on your student loan debt are still on hold due to the pandemic, that debt is eligible for forgiveness.
Some federal home education loans and some Perkins loans, which are guaranteed by the federal government, are held by private lenders and are not eligible for forgiveness. To determine if your loan is held by the government or by a private lender, log in to your account at studentaid.gov and call the list “My Loan Servicers”. If the administrator’s name is preceded by “DEPT OF ED”, this loan is held by the federal government.
If you consolidated or requested to consolidate private FFEL or Perkins loans into a Federal Direct loan before September 29, the consolidated loan should be eligible for the One-Time Forgiveness Program.
If you have more than one eligible loan, the department said on its website, it will decide where to apply the discount – although it did not say what criteria it would use to make that decision.
Can you unsubscribe?
No one is required to accept loan forgiveness, which would be considered taxable income in some states. If you automatically qualify for relief, the department said, it will email you to confirm that you want to accept it before forgiving the applicable amount of your debt.
What happens after I apply?
The department has stated that it will send you an email to confirm that it has received your application. If they need more information, like proof of your or your parents’ income, they’ll ask you. And if the department determines you don’t qualify, they’ll tell you the bad news.
When will my debt be reduced?
If your application is approved, the ministry said, it will notify the company or companies servicing your loans about your debt reduction. But the ministry’s website warns that “it may take some time for your account to reflect this change”.
The relief is expected to arrive before federal student loan repayments, which were suspended during the pandemic, resume in January. Your service agent(s) will tell you what your new balance is and, if you have any outstanding debt, what your monthly payment will be.
If you’re on an income-based repayment plan, your income, not the amount you owe, will dictate your payment amount. If you’re on a standard payment plan, the department said, your servicer will reduce your monthly payments to reflect the lower balance. You can choose to write a larger monthly check to pay off the loan faster and reduce the amount of interest you’ll pay over the life of the loan.
Again, if you are not automatically eligible for relief, you have until the end of 2023 to submit an application form. The longer you wait, the longer you delay any reduction in your monthly payments.
Will the debt relief be taxable?
Under federal law, the loan forgiveness amount you receive will not be considered taxable income by the IRS. But it will be considered taxable income in California, the state’s Franchise Tax Board said, unless lawmakers change state law.
Indeed, state lawmakers failed to conform California tax laws to the 2021 U.S. bailout, which excluded any canceled student loan debt from federal taxes. Instead, state law only excludes debt canceled under an income-based payment plan or utility loan cancellation program.
In a Tweeter last month, the state’s two top lawmakers pledged to pass legislation early next year to prevent the state from taxing loan amounts canceled by the Biden administration.
Can I get a refund for past payments?
If you owe less than $10,000 in federal loans (or $20,000, if you received a Pell Grant), one-time relief will erase that debt, but you won’t receive a check for the remaining amount.
However, if you voluntarily made student loan payments during the pandemic, you recover this money automatically. The amount you will receive in rebates and refunded payments is capped at $10,000 (or $20,000 for Pell Grant recipients).
The department also said it won’t refund any voluntary payments you’ve made if your federal student loan debt is over $10,000 (or $20,000 for Pell Grant recipients). All relief will be applied to your loan debt.
Is there anything that could block debt relief?
At least two federal lawsuits have been filed by conservative opponents of the loan forgiveness program, which the Congressional Budget Office says cost taxpayers $400 billion. A court could prohibit the ministry from proceeding with debt relief until the legal issues are resolved.
A common argument against debt relief is that blanket loan forgiveness can only be done by an act of Congress. For his part, the The Department of Justice says that the HEROES Act, a post-9/11 law enacted to assist military personnel deployed to Iraq and Afghanistan, authorizes the administration to write off student loan debt globally in times of emergency, such as the pandemic.