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Biden’s Student Loan Forgiveness Plan: A Guide for Borrowers

On August 24, 2022, President Biden announced that the federal government will cancel up to $20,000 of federal student loans for millions of borrowers. The student loan debt cancellation plan also extends the pause on monthly student loan payments through December 31, 2022¹. It’s important to note that if you are considering refinancing your federal loans with a private lender, any federal student loan balances you refinance will no longer be eligible for forgiveness.

Who qualifies for debt cancellation?

Individuals with an adjusted gross income less than $125,000 (or $250,000 if you’re married and file your taxes jointly OR if you’re the head of household) are eligible.

  • If you did not receive a Pell Grant, you’re eligible for up to $10,000*
  • If you received a Pell Grant, you’re eligible for up to $20,000*
  • Federal student loans obtained after June 30, 2022 are not eligible for debt cancellation
  • Any federal balances you refinance with a private lender like Earnest are not eligible for debt cancellation

*The amount of your relief will be capped at the amount of your federal student loans. For example, if you’re eligible for up to $10,000 in forgiveness but only have $5,000 remaining, you’ll receive $5,000 of relief.

Wait, what’s a Pell Grant?

The Pell Grant is applied for via FAFSA and is typically awarded only to undergraduate students who display exceptional financial need. If you’re not sure if you received a Pell Grant, you can log into your FAFSA account to find out.

What if I work in public service?

Borrowers employed by the following may be eligible to have all of their student loans forgiven through the Public Service Loan Forgiveness (PSLF) program:

  • Non-profit organizations
  • The military
  • Federal, state, Tribal, or local governments

Essentially, there are temporary changes that waive certain eligibility requirements in the PSLF program. These changes expire on October 31, 2022, which means you’ll need to apply before then. You can find more information and apply here.

Ok, it looks like I qualify for loan debt cancellation. What’s my next step?

  • If you’re enrolled in an income-driven repayment plan and you’ve submitted your most recent tax return, your loan provider and the Department of Education should have what they need and your cancellation should be automatic. Keep an eye out for communication from your provider.
  • If you don’t fall into that category, you’ll have to wait for the Department of Education to open their application process. It’s expected to be available before the end of the year. If you’d like to be notified of when it becomes available, you can sign up here.

What about the rest of my federal student loans?

Most borrowers will have outstanding federal student loans after the $10-20k of debt cancellation. Here are some factors to consider:

  • The payment pause has been extended through December 31, 2022, which means starting January 1, 2023, your federal student loans will start accruing interest and you’ll need to start making monthly payments again.
  • Interest rates are rising right now. After factoring in the amount of loan forgiveness you’re eligible for, It’s worth considering refinancing the remaining balance (your federal student loan amount minus the $10-20k you’re eligible for) of your federal student loans to lock in a lower rate while it’s available (and before you need to start paying back loans in January 2023)². Check out your rate to refinance the rest here³.

What about my private student loans?

If you have outstanding, private loans, or a mix of the two, refinancing could get you a lower interest rate and help you save money over the life of the loan. You can check out your rate here.

 

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

 

1 AN UPDATED NOTICE FOR BORROWERS WITH FEDERAL STUDENT LOANS: We want federal student loan borrowers to explore all their options before applying to refinance their federal student loans. Refinancing a federal student loan with a private lender means you will no longer have access to any benefits of your federal loans, including the temporary 0% interest rate and suspension of payments effective through December 31, 2022 and the debt cancellation on federally held loans announced by the Department of Education on August 24, 2022 (which includes up to $10,00 in debt cancellation for qualifying federal student loan borrowers – the amount is increased to up to $20,000 for qualifying Pell Grant recipients), the Public Service Loan Forgiveness Limited Waiver Option available through October 31, 2022, or any other current or future measures implemented for federally held loans. Please carefully review your current and potential benefits with your federal loan servicer, including debt cancellation and loan forgiveness options such as Public Service Loan Forgiveness and Income-Driven Repayment, before refinancing. To learn more about debt cancellation, visit https://studentaid.gov/debt-relief-announcement/.

2 You may lose benefits associated with your underlying federal and/or private loans if you refinance such as federal Income-driven Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options. If you file for bankruptcy, you may still be required to pay back this loan.

3 Loan Eligibility criteria: Your debt is from paying for education at a Title IV accredited school. The debt is from your education or your child’s. The debt you’re refinancing is for a completed degree or one that will be completed at the end of this semester. You are currently the primary borrower on the student loans you would like to refinance, and you will remain the primary borrower after refinancing. You must reside in the District of Columbia or one of the 48 states Earnest Operations LLC is authorized to lend in (all but Kentucky and Nevada). This is strictly a student loan refinance product. There is no opportunity to borrow more than your outstanding qualifying student loan amount. You must be the age of majority in your state or older at the time you apply, as well as be a United States citizen or Permanent Resident Alien without conditions. Refinancing is subject to credit qualifications. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX.

Earnest Loans are made by Earnest Operations LLC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit www.earnest.com/licenses for a full list of licensed states. For California residents: Loans will be arranged or made pursuant to a California Financing Law License.

Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.  

© 2022 Earnest LLC. All rights reserved.

Disclaimer: 1 AN UPDATED NOTE FOR BORROWERS WITH FEDERAL STUDENT LOANS:
On August 24, 2022, the U.S. Department of Education announced an extension of the federal student loan payment pause through December 31, 2022 along with additional information on debt cancellation. We want Earnest customers to explore all their options before applying to refinance their federal student loans. Refinancing a federal student loan with a private lender means you will no longer have access to benefits of your federal loans, including the temporary 0% interest rate and suspension of payments effective through December 31, 2022 on federally held loans, the debt cancellation announced by ED on August 24, 2022, the Public Service Loan Forgiveness Limited Waiver Option available through October 31 2022, or any other relief measures implemented for federal loans to address the COVID-19 crisis. Please carefully review your current and potential benefits with your federal loan servicer, including loan forgiveness options such as Public Service Loan Forgiveness and Income-Driven Repayment, before refinancing.

2 You may lose benefits associated with your underlying federal and/or private loans if you refinance such as federal Income-driven Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options. If you file for bankruptcy, you may still be required to pay back this loan.

3 Loan Eligibility criteria: Your debt is from paying for education at a Title IV accredited school. The debt is from your education or your child’s. The debt you’re refinancing is for a completed degree or one that will be completed at the end of this semester. You are currently the primary borrower on the student loans you would like to refinance, and you will remain the primary borrower after refinancing. You must reside in the District of Columbia or one of the 48 states Earnest Operations LLC is authorized to lend in (all but Kentucky and Nevada). This is strictly a student loan refinance product. There is no opportunity to borrow more than your outstanding qualifying student loan amount. You must be the age of majority in your state or older at the time you apply, as well as be a United States citizen or Permanent Resident Alien without conditions. Refinancing is subject to credit qualifications. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX.

Earnest Loans are made by Earnest Operations LLC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit www.earnest.com/licenses for a full list of licensed states. For California residents: Loans will be arranged or made pursuant to a California Financing Law License.

Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

© 2022 Earnest LLC. All rights reserved.