by Patricia Jones, Alliance Community Task Force: Creating Opportunity
The United States Department of Education is currently offering Federal Student Loan Debt Relief. The program provides eligible borrowers with full or partial discharge of loans up to $20,000 to Federal Pell Grant recipients and up to $10,000 to non-Pell Grant recipients. Pell Grants are offered to low-income students based on their FAFSA.
Applications can be filled out at studentaid.gov/debt-relief. The application takes about five minutes to complete. This is one-time debt relief. Applications opened earlier in October and will close December 31, 2023. You do not need to provide any documents when you apply, but the Department of Education may contact you for more information.
Not everyone qualifies for the student loan forgiveness. First, there is an income limit. An individual must have made less than $125,000 in 2021 or 2022, from your IRS Form 1040. For families, the maximum income limit is $250,000 in 2021 or 2020.
Private loans (from financial institutions and not the federal government) are not eligible for debt relief.
The debt relief applies only to loan balances you had before June 30, 2022. This includes Direct Loans (William D. Ford), FFEL loans (Federal Family Education Loans), Perkins loans, and parent or graduate PLUS loans. The loans could be subsidized or unsubsidized by the government.
Any new loans disbursed (when loan funds were received) on or after July 1, 2022, aren’t eligible for debt relief.
Federal loans in default (behind in payments) are also eligible.
Consolidation loans are a little more complicated. This means multiple loans have been combined, so a person only has to make one monthly payment. Federal student loan consolidation combines multiple federal loans into a single federal loan through the Department of Education. These loans are eligible for the debt relief program.
Private lenders offer private student loan consolidation, also called student loan refinancing. It is a good idea to consolidate private loans into one of these programs to reduce interest rates and to switch to one monthly payment. These loans are NOT eligible for the debt relief program.
Private loans cannot be transferred to the federal government, but federal and private loans can be consolidated with a private lender. If you did this, you lost the ability to get debt relief on the federal loan. The Department of Education is still negotiating with private lenders to see if this can be changed, so people who have this type of consolidated loan should pay attention to whether this gets resolved.
Another complication relates to the fact that there was a payment pause during the COVID pandemic. From March 13, 2020, to December 31, 2022, borrowers did not have to make student loan payments. If you made payments on your federal student loans during this time, the government will refund what you paid and cancel your loan up to the maximum debt relief amount.
StudentAid.gov can provide help filling out the form online or answering questions related to a specific borrower situation. Reach out to the agency at 1-833-932-3439.
The Department of Education has issued several warnings about scams from companies offering to help you deal with your loans or application for a fee. You NEVER have to pay for help with your federal student aid. As is true with all scams, you would be asked for personal information and passwords. DON'T! If the government is trying to contact a borrower, they'll send an email from [email protected], [email protected], or [email protected].