You Qualified for Loan Forgiveness, Now What?

Student loan debt is a big problem for millions of Americans. In fact, the average debt per borrower stands at $37,693. 

Fortunately, there’s a new program that promises to forgive up to $20,000 in student loan debt for millions of Americans. The program was announced in late August 2022, but applications were not available right away.

Borrowers are staying tuned in to student loan forgiveness news to find out next steps as they are announced. Here’s what you need to know about this new program, and how you can apply for student loan forgiveness. 

The latest on loan forgiveness

The original announcement for the new loan relief program was made on August 24, 2022. The Biden administration laid out its plans for the upcoming program, which is yet to be launched. 

The biggest component of the program is student loan debt relief, which will benefit millions of Americans. The details are as follows: 

• Up to $10,000 of student loans will be forgiven for eligible student loan borrowers.

• Up to $20,000 of student loans will be forgiven for eligible student loan borrowers who received a Pell grant while in college.

The program only applies to federal loans. If you took out private student loans, you won’t qualify for this program. 

This program will “cancel” student debt, which means the balance will simply be lowered by the appropriate amount. If you have a $15,000 loan balance and qualify for $10,000 in debt relief, your debt will be reduced to $5,000. 

If the relief amount exceeds your current balance, your entire loan may be forgiven — but you won’t receive any refund in cash. For example, if your balance is $8,000, your entire loan balance can be canceled — but you won’t receive the remaining $2,000. 

Who qualifies for loan forgiveness?

The loan forgiveness program applies to those who:

• Are federal student loan borrowers

• Currently have a student loan balance 

• Earn less than $125,000 per year (or $250,000 for married couples)

If you’ve previously paid off your student loans, you won’t qualify for this program. The one exception to this is if you have made payments since the payment pause implemented on March 13, 2020, you may qualify to have those repayments refunded.

If you earn more than the $125,000 or $250,000 limit, you will not qualify for this program. Income will be based on adjusted gross income (AGI). To find your AGI, you can look at line 11 of IRS Form 1040, the Individual Income Tax Return. 

I qualify for loan forgiveness, now what?

If you qualify for the program, you will need to fill out a student loan forgiveness application. At this time, the application is not yet available. 

The Department of Education has announced that the application should be live in early October. To stay on top of student loan forgiveness news, borrowers can sign up for updates from the Department of Education. 

Once the application launches, borrowers will have until December 31, 2023, to file an application. However, experts recommend filing before November 15, 2022. This earlier deadline will ensure you’re first in line for relief and will also mean that your loans should be forgiven before the payment pause ends at the end of 2022. 

Borrowers are also expected to face delays and potential website crashes once the application goes live, which is one more reason to be prepared to be patient. 

It’s also possible that the relief plan may face legal challenges, which could further delay the process. Borrowers should stay tuned to student loan relief news to stay informed. 

For now, borrowers must wait until the application launches. In the meantime, here are some best practices to prepare. 

Update your information with your loan servicer

Your student loan servicer is the company that actually manages the loan and processes payments. Because payments have been paused since early 2020, you may not have accessed your loan provider’s website in some time. 

It’s wise to log in now and make sure all your information is up to date. This includes your mailing address, income information and any other personal information that may have changed. 

Review your loan details

Next, check your loan details. You’ll want to confirm the current balance on your loans and compare this to the relief amount you are eligible for — $10,000 for most borrowers, and up to $20,000 for Pell grant recipients. 

You should also check your loan type at this time. Most federal loan types qualify for this program. However, around 5 million federal student loan borrowers have Federal Family Education Loan (FFEL) loans, which work a bit differently. 

FFEL loans are privately held and do not automatically qualify for loan relief. However, the Education Department is working to include these loans in the program. Currently, it’s not clear how this will work. Some experts are recommending that FFEL loan borrowers consolidate their loans into standard federal student loans. 

Gather your information

The debt relief application is live. Here’s what the form asks for:

• Name

• Social Security Number

• Birth Date

• Phone Number

• Email

If you received a Pell grant, you might want to keep proof of that on hand. This could be your financial aid letter from the relevant year or years or a screenshot of the Pell grant confirmation. 

Be ready to apply

Finally, be ready to apply as soon as the application launches. Here are key dates to keep in mind:

Early October — The application is set to launch.

November 15, 2022 — The recommended application deadline in order to receive relief before the payment pause ends.

December 31, 2022 — The end of the ongoing payment pause. After this date, you’ll be required to begin making repayments on your federal student loans. 

December 31, 2023 — The tentative deadline for applying for student loan relief. 

Bottom line

If you qualify for loan forgiveness, it’s wise to be prepared for the upcoming application launch. Once it goes live, applying ASAP is recommended. 

Beyond student loans, high-interest debt like credit cards holds many Americans back from their financial goals. If you have credit card debt, Tally† may be able to help. Tally is an app that helps qualifying applicants consolidate credit card balances into a lower interest line of credit. Learn how Tally works. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.