Student Loans: Lowering Payments + Change in Who Receives Forgiveness + Dates to Watch
DISCLAIMER: All information below represents an interpretation of the Inflation Reduction Act of 2022 and is not to be used as tax advice or to support any financial decisions. As always, consult your tax professional.
There has been so much debate about student loans and this blog is devoted to simply presenting next steps on what to do if this affects you. But my take: I’m for student loan forgiveness and wish they forgave even MORE.
LOWER Student Loan Payments
In addition, there is a new application for income based payments for student loans. This is a program for reduced payments based on income, according to the White House this “cuts payments in half”. Monthly payments are capped at 5% of discretionary income, which is half the amount it used to be. So for example, if you’re income is roughly $2k per month, your monthly payment will at MOST be $100 ($2k x 5%), as opposed to it previously being $200.
What do you need to do now?
Prior to the payment pause being lifted on December 31, 2022 it is recommended to either apply for an income-driven repayment plan or recertify your plan here.
Student Loan Forgiveness + Recent Change of Rules
What’s the news?
You can receive up to 10k in loan forgiveness on your federal student loans and up to 20k if you are a Pell grant recipient.
Who qualifies?
The loan must be a federal loan (no private loans) and your income must be under $125,000 or $250,000 for single and married filing joint taxpayers respectively.
If you received a Pell Grant in college you can receive up to $20k.
If you did not receive a Pell grant you can receive up to $10k.
Recent change in rules - SOME LOANS NO LONGER QUALIFY:
FFLEP student loans commercially held are no longer eligible. These are federally backed loans that were originally funded by private companies, this program ended with the 2009-2010 academic year. So if you went to school prior to this date, check if your loan is held by the government or by a commercial bank. If held by the government it still qualifies.
Why though? Because the private commercial banks sued over not being able to collect interest on the student loan debt that is forgiven. (WTF!!!) As if they haven’t already received over a decade of interest from students.
Aren’t sure what type of loan you have?
Besides contacting your lender, one simple (but non-exclusive) way to determine you have a forgivable loan is if its been automatically paused for payments during the Covid-19 suspension.
What do you need to do now?
The US Department of Education must know your income data to forgive your loans – its unclear how they’ll have that data but they say they have it for 8 million people. Since we can’t tell whether they have info on you, they are drafting a “simple” application. I recommend you fill this out regardless of whether you think they have your data.
To be notified when you can fill out the application you can sign up here.
On 10/11 we received a preview of the application via twitter. Here is the tweet below:
Dates to know (shout out to @leothedebtslayer for these dates)
Early October 2022 – Application is expected to become available.
November 15th 2022 – Recommended that you apply for forgiveness by this date to be completed prior to the payment pause lifted since there is a 6 week turnaround and payments start again on 12/31. This way you won’t have to make payments on forgiven loans – it would be messy.
December 31st 2022 – Pause on payments have been extended again to December 31st, 2022, a lot of people are saying it’ll get extended again but they said this is really the last time ;)
December 31st 2023 – Last day to apply for student loan forgiveness.
Student Loan Forgiveness for Public Service Loans (PSLF) – Action Required by Oct 31, 2022!
What is PSLF?
Since 2007, borrowers who devote a substantial portion of their careers to public service work can receive FULL student loan forgiveness. Typically, forgiveness begins after 120 qualifying payments are made (equivalent to a minimum 10 years). Qualified payments are income driven repayment plans while working full time for a nonprofit or government organization.
What’s changed?
Biden passed a Limited PSLF Waiver that made it much easier to qualify for forgiveness – in summary there are many more ways to meet that 120 qualifying payment threshold.
All loan repayments including those under Federal Family Education (FFEL) and Perkins Loans will count towards the minimum 120 payments in order to qualify.
Let me translate this: There are several types of student loans, in the past only the ones directly from the US government qualified (the actual name “direct” is in the name of the loan), but now you can get credit for private loans that are backed from the US government (names are Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and Consolidated Loans)
Loan payments typically only counted after 2007, now payments made prior to 2007 can also count towards the 120.
Repayment prior to consolidation (even if paid late or less than the amount due) count towards the 120.
You can receive forgiveness even if not employed (or employed by qualifying employer) at the time of application or forgiveness.
Do you qualify for the limited waiver?
If you have Direct, FFEL or Perkins loans AND work full time at a qualifying employer you will be eligible during the same period your loans were/are in repayment.
Check to see if you work at a qualifying employer here.
What to do NOW if you qualify:
If you have direct loans only and are already in the PSLF program – nothing to do.
If you have FFEL Loans – consolidate your loans into a direct loan BEFORE OCTOBER 31, 2022 and submit a PSLF form
