Student loan forgiveness: Government opens beta version of application

The Education Department (ED) opened up a beta version of its student loan forgiveness application process at studentaid.gov/debt-relief/application, offering periodic access to some borrowers who can apply ahead of the official launch.

"We're accepting applications to help us refine our processes...If you submit an application, it will be processed, and you won't need to resubmit," according to the website.

No official launch date was provided.

The simple online form is the same one as the preview given to the press on Tuesday. It asks borrowers to provide their name, Social Security number, date of birth, phone number, and email. Borrowers won't need to upload any documents or log in with a Federal Student Aid (FSA) ID. To prevent fraud, all borrowers must attest to their eligibility under penalty of perjury and jail time.

After submitting the application, borrowers should receive a confirmation email. ED will contact borrowers by email if additional information is needed. The borrower will also receive notification when the application is approved and sent to the loan servicer. The loan servicer will then notify the borrower when the debt relief has been applied and if there is a new payment based on any remaining loan balance.

(Screenshot: StudentAid.gov)
(Screenshot: StudentAid.gov)

Borrowers have until the end of 2023 to apply, but are encouraged to get their applications in by mid-November. Applying early gives loan servicers enough time to recalculate a borrower's monthly payment based on their new loan balances before payments resume in January 2023.

An ED official said that borrowers should receive debt relief "in a matter of weeks" after completing the form. The department expects to process the majority of claims by mid-November before January payments resume.

In August, the Biden administration announced $10,000 in student loan forgiveness along with an additional $10,000 in forgiveness for Pell Grant recipients. Single borrowers who make less than $125,000 in adjusted gross income (AGI) and heads of household or married filing jointly borrowers who earn less than $250,000 in AGI are eligible for loan forgiveness.

More than 40 million borrowers are eligible for student debt relief, while nearly 20 million borrowers could have their entire remaining balance forgiven, according to White House projections.

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Here's what else you need to know about Biden's student loan forgiveness.

Beware of scammers

Be wary of anyone offering loan forgiveness who also requires payment and/or sends a link that is not the official website at StudentAid.gov, which is the only site where the application is available.

White House Avoid Student Loan Scams
White House Avoid Student Loan Scams

Which types of student loans are eligible for forgiveness?

Only federally backed student loans are eligible for forgiveness. Loans from private banks and lenders don't qualify — this includes federal loans consolidated with a private lender.

Both undergraduate and graduate direct loans are eligible for cancelation along with Parent PLUS loans taken out by parents or guardians.

As of September 29, 2022, borrowers with federal student loans not held by the Education Department are not eligible for debt relief by consolidating those loans into federal direct loans. If you had FFEL and Perkins Loans not owned by the Education Department and applied to consolidate them into the federal direct loan program before Sept. 29, 2022, they are eligible for loan forgiveness.

If your loans are in default, use the Fresh Start Program to get them back in good standing.

Loans eligible for Biden's loan forgiveness
Loans eligible for Biden's loan forgiveness

Who qualifies for $20,000 in student loan debt forgiveness?

Borrowers who received Pell Grants and make less than $125,000 as individuals or less than $250,000 as married couples are eligible to receive $20,000 in student loan debt forgiveness. Your income is based on either your 2020 or 2021 federal tax return AGI.

What is a Pell Grant?

A Pell Grant is a federal grant to low-income undergraduates who have not yet earned a first bachelor’s degree with the greatest demonstrated financial need. Eligibility is determined from documentation provided on the free application for federal student aid, known as FAFSA.

In 2020-21, approximately 6.4 million students received a Pell Grant with the average award of $4,166 and over 78% of recipients had family incomes of less than $40,000, according to the National Association of Student Financial Aid Administrators (NASFAA).

Who qualifies for $10,000 in student loan forgiveness?

Those who did not receive Pell Grants but make less than $125,000 as individuals or less than $250,000 as a married couple are eligible for $10,000 in student loan debt forgiveness. Your income is based on either your 2020 or 2021 federal tax return. It is expected that income will be based on adjusted gross income (AGI), but we are awaiting confirmation from ED.

Loan Forgiveness Debt Allocation
Credit: NASFAA

What happens with my payments if I'm not eligible for forgiveness or the forgiveness doesn't cancel all my debt?

Biden also extended the pause or forbearance on federal student loan payments until December 31. It is not expected to be extended again. If you have debt remaining after loan forgiveness, your loan servicer will recalculate your new balance and monthly payment. Payments will resume in January 2023.

Is the forgiven student loan debt taxable?

Not on the federal level. This debt relief will not be considered taxable income for federal income tax purposes because of a provision in the American Rescue Plan passed in March 2021.

However, some states — like Arkansas, Minnesota, North Carolina, and Wisconsin — may consider it taxable income.

What happens to any payments I made during the payment pause?

If you made payments during the federal student loan moratorium (beginning March 13, 2020), you can get a refund for payments made by contacting your loan service provider, according to the Federal Student Aid website.

Is this the same as the Public Service Loan Forgiveness (PSLF) program?

No. The Public Service Loan Forgiveness provides student debt forgiveness to those who have worked at least 10 years in public service jobs with federal, state, local, or certain non-profit organizations such as teachers, nurses, doctors, lawyers, and other professionals. The PSLF waiver expires October 31.

Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda

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