Does your student loan qualify for forgiveness? The short and long answers

The Biden administration announced a plan Wednesday to forgive up to $20,000 in federal student loans. (Delcia Lopez/Associated Press)

This week’s headlines about student loan debt forgiveness have many borrowers scrambling to figure out if they would be eligible for help.

Under the administration’s plan, anyone earning less than $125,000 (or married couples earning less than $250,000) would qualify for up to $10,000 in federal student loans. Up to $20,000 in loan forgiveness will be available to borrowers who meet income limits and have Pell grants, which are awarded to students from families of extremely limited means.

But there are many types of federal loans, and the administration has not offered guidelines specifying which can be forgiven. Instead, it has said that any loan has been taken directly from the federal government will be included in the debt relief program. These loans — the primary form of federal funding since 2010 — make up the bulk of student debt.

What about FFEL, Perkins and HEAL loans?

This is where things get murkier. The Federal Family Education Loan, Federal Perkins Loan, and Health Education Assistance Loan programs offered loans guaranteed by the federal government but issued by schools or private lenders. The Department of Education owns some FFEL and Perkins loans, but some of them (and all HEALs) are held by third parties.

When the federal government suspended loan payments and interest charges during the pandemic, the relief only applied to Direct, FFEL and Perkins loans held by the government, and Direct, FFEL, Perkins and HEALs in default. Any loan whose payments and interest have been suspended will be eligible for $10,000 to $20,000 in forgiveness, said Abby Safroth, director of the student loan borrower assistance program at the National Consumer Law Center.

To find out if your FFEL or Perkins loans might qualify, go to your account on the Federal Student Aid website (studentaid.gov) and call the “My Loan Servicers” list. If the servicer’s name is preceded by “DEPT OF ED,” that loan belongs to the federal government.

Many people may not know whether their older loans are federally held because they weren’t given a choice when they took them out, Shafroth said. The loans they received depended on the financial aid programs their school participated in while they were enrolled.

So will people with private equity but federally guaranteed loans be included in the new forgiveness effort? The White House says yes, although, again, the Department of Education has yet to issue guidelines for lenders.

A White House spokesman said via email that the Department of Education “will work with private lenders to ensure that commercially incarcerated federal student loan borrowers can also take advantage of the relief, including private FFELs, Perkins and Education Assistance Loans Health that are integrated into the Direct Loan Program”.

However, this is not over, Shafroth said. “It’s something they’re working on, finding a path forward, and I applaud them for that.”

How about consolidation loans?

If you have refinanced your private and federal loans into one from a private lender, it is private and therefore not eligible for forgiveness.

But if you’ve combined your federal loans — direct or guaranteed, such as FFEL or Perkins — into one federal consolidation loan, that will be eligible for forgiveness if they each disburse their funds before July 1. In other words, if you took out a federal student loan in July and then consolidated it with your older federal loans, the new, consolidated loan would not be eligible.

Shafroth said it’s a good idea to convert any FFEL and Perkins loans into a federal consolidation loan. This would not only remove the doubt about eligibility for loan waiver, he said, but would also create other potential benefits of the government’s reforms.

For example, borrowers who won’t have all their balances forgiven and hold government or nonprofit jobs should consolidate now to take advantage of the temporary extension of the public service loan forgiveness program, he said. The program, which eliminates all federal loan debt for people who make 10 years of payments while in public service, waives some of its usual eligibility requirements through Oct. 31.

Another example: Some federally guaranteed loans are not eligible for income-based repayment plans unless they are part of a consolidation loan. In an income-based plan, borrowers typically pay 10% of their discretionary income each month for 20 to 25 years, at which point the remaining balance is paid off.

The Department of Education is in the process of reviewing payment records for these plans, giving borrowers credit for months payments had stopped and for months spent in long forbearance periods. That process, which won’t be completed until Jan. 1, Shafroth said, will allow borrowers to pay off their balances sooner.

You can start the consolidation process at the Department of Education’s Federal Student Aid website. Learn more here.

What if I’m defaulted?

Shafroth said defaulting federal direct loans are expected to be eligible for forgiveness. If your loan collections have been disrupted during the pandemic, this is a good sign that it could be forgiven if your income is below the ceiling.

About 7.5 million people have defaulted on student loan debt.

How sure are we about these details?

It is important to remember that the administration’s proposal exists largely in the form of announcements and newsletters, not yet in anything as formal as a law, regulation, or executive order. Student loan servicing companies, which will be front and center for much of this effort, have yet to see guidance from the Department of Education.

“This was news to everybody,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance. “There are a lot of regulatory things that we need to work through and figure out.”

Historically, he said, there have been legislative or regulatory obstacles to some of the steps the White House has said it plans to take.

“It will be a collective effort between us and him [Education Department] find a way to move forward here,” Buchanan said.

There’s also the possibility that critics of the plan could sue to try to block it. Some argue that the department does not have the authority to forgive debt on such a broad scale — an issue raised by President Biden last year, though the administration has since issued a legal opinion arguing that it has that authority.

Shafroth said she is optimistic the amnesty plan will survive.

“It’s one thing for opponents of debt relief to talk about it in the media and on Twitter,” he said. “It’s another thing entirely for them to actively try to claw back billions of dollars in economic relief from 43 million working and middle-class Americans.”

Do Parent Plus loans qualify for forgiveness?

The short answer is yes.

The bigger answer is that it depends on income. Yes — if the parent’s income is less than $125,000 for a single filer or $250,000 for a married couple.

Can current or new students get their debt forgiven?

Current students, yes, if their loans are federal direct loans and they meet income limits. But the relief only applies to loans issued before July 1.

This means that students who have not yet started college or taken out loans will not be eligible for loan forgiveness from this program in the future. Nor will current students with eligible loans be able to throw new loans into the forgiveness mix.

Do I automatically qualify for a loan write-off?

In some cases, yes. If you’re on an income-based repayment plan and you’ve kept your information up to date, the government knows how much money you earn and is expected to apply the appropriate amount of loan forgiveness to your account.

But if you’re on a standard repayment plan – meaning you pay the same amount every month, regardless of your income – you’ll need to fill out paperwork that the Department of Education will provide in the coming weeks. To stay up to date with updates, sign up for emails from the department.

What if I have already paid off my loans?

Congratulations! You have no more student debt.

For people who have recently paid off their loans, there may be a way to get some money back. The Fresno Bee pointed out that you can get refunds for payments made after March 2020 and have the resulting balance written off under the program. Be sure to read the fine print if you attempt this.

Where can I find more information?

The Times has covered many aspects of this issue:

To explore these issues and answer your questions, The Times hosted a Twitter Spaces conversation Thursday with staffers Jon Healey, Jessica Roy, Eli Stokols and Debbie Truong. You can listen to a replay here.

This story originally appeared in the Los Angeles Times.

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