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Student Loans
Student Loans
8 New Details on How Student Loan Cancellation Will Actually Work
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8 NEW DETAILS ON HOW STUDENT LOAN CANCELLATION WILL ACTUALLY WORK

Cecilia Clark
Oct 28, 2022



Many or all of the products featured here are from our partners who compensate
us. This may influence which products we write about and where and how the
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President Biden’s highly anticipated federal student loan cancellation
announcement last month created as many questions as it answered, prompting at
least one major loan servicer’s website to crash as borrowers hustled to check
their eligibility.

What is clear: Individuals making less than $125,000 and couples filing jointly
making less than $250,000 may receive up to $10,000 in student debt cancellation
— and that maximum goes up to $20,000 if the borrower ever received a Pell
Grant.

What has been murky: Which loans will the cancellation apply to first? Will
payment amounts on any remaining student debt change after cancellation? And
what happens with FFELP loans?

Here’s the latest about how student loan cancellation will actually work.


1. WHEN CAN I APPLY?

The application for student loan cancellation is available now.

While about 8 million borrowers may see cancellation automatically, most will
need to submit an application. The application will initially be available only
online, but borrowers can expect access to a paper version at a later date.

Borrowers must apply for cancellation before the window closes on Dec. 31, 2023.
So, if you have access to the online application, don't wait around for the
paper one, to ensure your application is handled in as timely a manner as
possible.




2. HOW CAN I GET READY FOR CANCELLATION?

There are two main steps you can take to prepare for cancellation:

 * Verify you meet the income eligibility criteria.

 * Make sure your contact information is up to date on Studentaid.gov and with
   your servicer.

To be eligible, your annual federal income for 2020 or 2021 must be less than
$125,000 if you filed as an individual. If you filed jointly, the cutoff is
$250,000. If you earned above the maximum in one of the two years but met the
threshold in the other, you can qualify with the lower annual income.

While it may seem safe to assume adjusted gross income is what qualifies for
federal annual income, the Education Department has not clarified explicitly.


3. HOW MUCH WILL I GET?

Here’s the deal on the Pell Grant qualification: If you have ever received a
Pell Grant of any amount and meet the income requirement, you get $20,000 in
cancellation ($10,000 based on income requirements, plus an extra $10,000 for
being a Pell Grant recipient).

The Pell Grant award does not have to correlate with the time, school or program
for which you used your federal student loans. For example, let’s say you
received a Pell Grant for your community college and didn’t use loans. Ten years
later, you went back and finished your undergraduate degree with loans. Those
loans can qualify for the $20,000 cancellation.

This is particularly critical for Parent PLUS borrowers. A Parent PLUS loan is
not necessarily eligible for the extra $10,000 in cancellation just because the
child who benefited from the loan was a Pell Grant recipient. In order for a
Parent PLUS loan to get the extra relief, the parent borrower must have received
a Pell Grant for their own education at some point.

The extra $10,000 is not prorated based on the amount of your Pell Grant. A Pell
Grant award of any amount qualifies for the extra $10,000 in full.


4. DO FFELP LOANS COUNT?

Some FFELP loans will receive cancellation. Here are all the loan types that are
eligible:

 * All loans under the Direct Loan Program.

 * Federally-owned FFELP loans.

 * Defaulted FFELP loans held at a guaranty agency.

 * Federally-owned Perkins loans.

 * Other defaulted loans, including commercially-serviced Stafford loans.

Commercially-owned FFELP loans only if you applied to consolidate them into a
direct loan by Sept. 29, 2022. Commercially-owned FFELP loans could also count
if you also have a Direct Loan Program loan and opt to consolidate the debts.
Consider the pros and cons of consolidation to make sure it’s worth it.

Check Studentaid.gov to verify which types of loans you have. Here’s how to find
that information on the portal.

 * Log in to Studentaid.gov.

 * Select “My Aid” in the dropdown menu under your name.

 * See your loans listed in the “Loan Breakdown” section.

 * Expand “View Loans” and select “View Loan Details” next to each loan to see
   more details.


5. WILL A PAYMENT REFUND INCREASE MY CANCELLATION AMOUNT?

You can request a refund on student loan payments made during the pandemic
forbearance if payments weren’t required.

For anyone who paid down their debt below the cancellation amount they qualify
for, the Education Department says a refund of the overpayment would be
automatic.

Other borrowers, who have a balance remaining even after the $10,000 or $20,000
debt cancellation, still can receive refunds on voluntary payments made after
March 13, 2020, by contacting their servicer. It's important to note that these
refunded payments will increase your loan balance and your monthly payments. If
you expect to have a balance after discharge is applied and wish to request a
refund, you can do so by contacting your servicer until Dec. 31, 2023.


6. WILL MY PAYMENT CHANGE AFTER CANCELLATION?

Borrowers will see their loans reamortized based on their post-cancellation
balances. Monthly payments will likely decrease as a result. However, the
remaining payment term will stay the same.

“Ideally if everything is still in order, if you can afford that (original)
payment, continue making that bigger payment,” says Damian Dunn, certified
financial planner and vice president for corporate financial wellness platform
Your Money Line. Borrowers “know how painful student loan debt can be,” he says.
“If they can get from under that faster, even better.”


7. CAN I PICK WHICH LOANS ARE CANCELED?

Borrowers with multiple loans cannot select how they want their cancellation
applied. Here is the order in which loans will receive relief:

 1. Defaulted federally-owned loans.

 2. Direct loans and federally-owned FFELP loans in good standing.

 3. Federally-owned Perkins loans.

The Education Department will use the following order to cancel loans if you
have several loans of the same type:

 1. Loans with the highest statutory interest rate.

 2. If interest rates are the same, unsubsidized loans get relief before
    subsidized loans.

 3. If interest rate and subsidy are the same, newest loans get relief.

 4. If all other factors are the same, the loan with the lowest combined
    principal and interest balance gets relief.


8. WHAT IF I WANT TO OPT OUT OF FORGIVENESS?

Most borrowers will need to submit an application in order to get cancellation.
Borrowers who do not want to get cancellation can choose not to apply.

But automatic cancellation is expected for those who have recently certified
their income for an income-driven repayment plan and for those who have recently
submitted the FAFSA. The Education Department said September 29 that those
borrowers can opt out of relief — some may want to, for tax purposes.

If you want to opt out, contact your servicer by email or phone. Tell them you
don't want the one-time student loan cancellation applied to you account.


HOW CAN I GET UPDATED INFORMATION?

You can find the latest updates on the Education Department’s website. Once the
application is live, borrowers should call 833-932-3439 for help.

About the author: Cecilia Clark is a student loans writer with NerdWallet, where
she helps readers navigate the landscape around college finances. Read more


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