By Maria Carrasco, NASFAA Staff Reporter
The Department of Education (ED) posted more information about President Joe Biden’s student debt relief announcement, including updated information on eligible loans and other frequently asked questions.
Last month, Biden announced he will cancel $10,000 for single borrowers making less than $125,000, or households earning less than $250,000 on federally-held student loan debt. Eligible Pell Grant recipients will receive an extra $10,000 in relief.
Many questions popped up after Biden’s announcement, including which loans are eligible and how the relief would be implemented. The updates were posted on the Federal Student Aid website this week.
ED states the types of federal student loans with an outstanding balance as of June 30, 2022 eligible for relief are Direct Loans, which include subsidized loans, unsubsidized loans, Parent PLUS loans, Grad PLUS loans, and consolidated loans.
Consolidated loans are eligible as long as all of the underlying loans that were consolidated were first disbursed on or before June 30, 2022. If a borrower consolidated federal loans into a private non-federal loan, the consolidated private loan is not eligible for debt relief, according to ED.
Other loans included in the relief plan are Federal Family Education Loans (FFEL) held by ED or in default at a guaranty agency, and federal Perkins loans held by ED. However, relief for other FFEL and Perkins loans depends, ED states, adding that it is assessing whether to expand eligibility to borrowers with privately owned federal student loans.
Borrowers with privately held federal student loans, including FFEL, Perkins, and HEAL programs, can receive the loan cancellation by consolidating these loans into the Direct Loan program, according to ED. However, FFEL Joint Consolidation Loans — which are often referred to as spousal consolidation loans — are not eligible for consolidation into the Direct Loan program under current law.
Defaulted loans — including federally-held or commercially serviced subsidized Stafford, unsubsidized Stafford, Parent PLUS, and Grad PLUS, along with Perkins loans held by ED — are also eligible for relief. Defaulted borrowers with a remaining balance after the relief are recommended to get out of default through ED’s new “Fresh Start” initiative.
ED recommends borrowers first determine if they’re eligible for the relief by checking their annual federal income in 2021 or 2020. Borrowers then should log into their account on StudentAid.gov and with their own loan servicer to make sure their contact information is correct. Borrowers who don’t have an FSA account should make one.
The application to receive relief will be available online by early October 2022 and a paper version of the form will be made available at a future date. Updates as to when the application is made live will be emailed to borrowers and updated on the FSA website. Borrowers will have until Dec. 31, 2023, to submit their application.
When borrowers submit their application for debt relief, they’ll see a page online confirming their form was submitted and will get a confirmation email from ED. Borrowers will be notified by their loan servicer when the relief has been applied to their account, with details on how the relief was applied, ED states.
However, about 8 million borrowers may be eligible to receive relief automatically and won’t need to fill out an application because their income data is already available to ED. Those borrowers will receive an email and text message from ED alerting them of their status.
ED states it will use FAFSA and income-driven repayment application information to identify borrowers who have submitted income data for tax years 2021 or 2020. If ED has borrower data for both years, it will use the year with the lower income.
Borrowers who have remaining loan balances after the relief is applied will have their balances re-amortized. The borrower’s monthly payment will be recalculated based on the new balance, which could potentially reduce the borrower’s monthly payment, according to ED. Loan servicers will notify borrowers about their new payment amount.
ED states that it will determine how relief gets applied to borrowers’ loans and provide the guidance to loan servicers, who will then process the relief. For borrowers with multiple loans, the relief will be applied in the following order: defaulted ED-held loans, defaulted commercial FFEL loans, non-defaulted Direct Loans and FFEL loans held by ED, and Perkins Loans held by ED.
For borrowers with multiple loans in a program type, such as multiple Direct Loans, ED will apply the relief in the following order:
Apply relief to loans with the highest statutory interest rate.
If interest rates are the same, apply to unsubsidized loans prior to subsidized loans.
If interest rate and subsidy status are the same, apply to the most recent loan.
If interest rate, subsidy status, and disbursement date are the same, apply to the loan with the lowest combined principal and interest balance.
ED will also identify borrowers who applied for Public Service Loan Forgiveness (PSLF). ED said if borrowers receive the one-time cancellation and are later found to have been eligible for PSLF forgiveness, it will adjust borrowers’ loan and apply the PSLF discharge, which may provide a refund on certain eligible payments made after the borrower has already made 120 payments.
Though the loan debt relief won’t be subject to federal income taxes, state and local tax implications will vary. ED states borrowers are eligible for debt relief regardless of whether they're in repayment, in school, or in grace, as long as they meet the income requirements and have eligible loans.
ED stated it will continue to update the webpage as details become available and stressed that its contact center agents have the same information borrowers can read online. NASFAA will continue monitoring this webpage and other updates related to Biden’s loan relief.
Publication Date: 9/7/2022
Sarah B | 9/9/2022 1:6:00 PM
The inequity continues for those borrowers whose private FFEL servicers kept their portfolio rather than transferring to the Department. While most will qualify for relief, they face an additional access barrier.. These borrowers were excluded from CARES Act interest and payment pauses, and borrowers with Joint Consolidation Loans will be excluded from forgiveness as they are with PSLF temporary waiver because they cannot separate loans to consolidate under DL. The Senate passed S.1098 Joint Consolidation Separation Bill by unanimous consent on 6/15/22 and has been held at the House Desk since 6/17/2022. The stalled bill is nearly identical to H.R. 2460 and could open up relief to a group of borrowers that have been excluded from nearly all federal loan benefits largely because the same servicers drove them into a short-lived and poorly-designed repayment option.
Peter G | 9/8/2022 1:39:43 PM
That said, for the relatively small number on the bubble, some more clarity would be helpful. "Federal annual income" as stated on the FSA site presumably implies...AGI?
Peter G | 9/8/2022 1:37:56 PM
I'm not sure most people need to "check" that they had less than 125/250k income lol
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