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Chances are you received one as part of your financial aid package while in college: Of the estimated 43 million borrowers who will benefit from the administration’s forgiveness plan, more than 60% are Pell Grant recipients, according to the White House.
If you are unsure whether you received a Pell Grant through your financial aid program, you can check your account at studentaid.gov. On your main account page, there is a section called “My Help”.
Alternatively, you can check with the financial aid office of the college you attended to see if they can provide you with this information, Kantrowitz said.
Relief will be limited to borrowers earning less than $125,000 a year, or married couples or heads of households earning less than $250,000.
View your recent tax returns to confirm that your income fell below these thresholds in 2020 or 2021 (either will work). The US Department of Education will consider so-called Adjusted Gross Income, or AGI, which may be different from your gross salary.
To confirm your AGI for 2020 and 2021, locate line 11 on the first page of your tax return, known as Form 1040.
Overall, the vast majority – around 37 million borrowers – will be eligible for forgiveness depending on their loan type (and then as long as they also fall under the income cap), because their debt is under that. called the William D. Ford Federal Direct Lending Program. This includes direct Stafford loans and all subsidized and unsubsidized direct federal student loans. Under the Direct program, Parent Plus and Grad loans are also eligible for relief.
Then it gets complicated.
At first, the Ministry of Education said that all loans it holds would be eligible. This meant that the roughly 5 million borrowers who held a Federal Family Education Loan (FFEL) could have been excluded. These borrowers have also been excluded from the pandemic-era payment pause that is still in effect.
However, the department now says it is looking at ways to work with private lenders to ensure federal student loan borrowers held in businesses can also qualify for a discount, according to a spokesperson.
Those borrowers will have more than a year to apply for the relief once the government’s student loan forgiveness application becomes available, and they don’t need to take action now, the spokesperson said.
If you’re anxious to make sure you qualify, you can transfer your loan now to the direct program by calling your service agent or visiting StudentAid.gov website. You will want to fill in the “federal direct consolidation loan application.”
All private student loans are excluded from the President’s Plan.
Student loans taken out after June 30, 2022 will not be included in the relief.
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The Ministry of Education said it will launch an app by October where borrowers can enter their income data and request loan cancellation. Borrowers can register now on its website for updates on the process.
The ministry also said it already had income information for nearly 8 million borrowers because they were enrolled in income-driven repayment plans that already required the data.
These people can get an automatic cancellation.
The student loan forgiveness will not trigger a federal tax bill.
However, you may still be liable for state levies, Kantrowitz said. Although a number of states have already said they will not tax relief, some may continue to do so.
The amount “could be the equivalent of a few student loan repayments,” Kantrowitz said.
If you are unsure, contact a local tax professional for an estimate before filing your tax return.
Experts recommend taking a photo or screenshot of your current student loan balance. This way you can ensure that it drops by the correct amount once the forgiveness has taken place.
A Department of Education spokesperson said it could take around eight weeks after getting all the necessary information from a borrower until their debt is cleared.
The deadline to submit a pardon application will be December 31, 2023.
While no lawsuits have yet been filed, GOP attorneys general from states including Arizona, Missouri and Texas, as well as Sen. Ted Cruz, R-Texas, and those connected to the group Heritage Foundation conservative think tank, are considering their options when it comes to trying to block loan forgiveness, according to Washington Post reports.
“The uncertainty for borrowers in the meantime is, I fear, considerable,” said Laurence TribeHarvard law professor.
The issue could go all the way to the Supreme Court. In the meantime, borrowers are still encouraged to seek relief.
In addition to Biden’s announcement on canceling student loans, he said he extend payment break on federal student loans through December 31. Payments will resume in January.
This is the seventh extension of the relief policy in the era of the pandemic started under the Trump administration and it will probably be the last.
– CNBC’s Sarah O’Brien and Kate Dore contributed reporting.
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