5 ways to prepare for student loan forgiveness
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There is big news for millions of student loan borrowers and their families. The U.S. government announced it is canceling up to $20,000 in federal student loans (including Parent PLUS Loans).
Here's who qualifies:
- Borrowers with annual income under $125,000 ($250,000 for married couples) will have up to $10,000 forgiven.
- Pell Grant recipients with income below $125,000 ($250,000 for married couples) will have up to $20,000 in student loans forgiven.
The current pause on federal student loan payments is extended through Dec. 31, 2022. Signs point to this being the final pause on payments and interest. If you have federal student loans or recently paid them off, the time to start planning is now.
How to prepare
The full details of when and how these loan balances will be forgiven are still being ironed out. Here are some key steps you can take right now to be ready:
1. Sign up for email updates
The U.S. Department of Education (DOE) will provide email updates on the forgiveness process. This may include information like how to share income, the timeline for loan forgiveness, and more. Stay informed by signing up for these updates.
2. Check who services your loans
Your loan service provider may be different than when you last made a payment, especially if your last payment was before the pause began. To find out who services your federal student loans, visit “Who’s my student loan servicer?”, which is maintained by the DOE's office of Federal Student Aid. Once you have confirmed your servicer, make sure your contact information is current. This information will be used to send updates and important information about your loans.
3. Confirm your dependency status
Current college students or recent graduates with student loans that originated before June 30, 2022, may qualify for forgiveness. This depends on your parents' income. If you are a claimed dependent, you can qualify if your parents' 2020 or 2021 income fits the forgiveness requirements.
4. Look into requesting a refund
If you continued making payments on your student loans during the pause (which started on March 13, 2020) and will be qualifying for debt forgiveness, you can request a refund for some of those payments. For example, if you started the pause with $10,000 in federal student loans and you paid down those loans to a balance of $8,000, you could request a refund of the $2,000 you paid. You will need to contact your loan provider and provide proof of the payments to request a refund.
5. Update your spending plan
If you will still have student loans after forgiveness, now is a great time to get ready to make your payments. Log in to your student loan servicer’s website to check your balances, interest rates, and what your future payments will be. With that information, you’ll want to come up with a budget that accommodates your student loan payments.
If your future payments feel out of reach, you may want to consider accessing an income-driven repayment plan. These plans cap monthly payment at a certain percentage of your income (5% for undergraduate loans), but they can also extend your loan term.
Tackle your financial goals
If you are benefitting from student loan forgiveness, now is a great time to think about how to use the money you would have otherwise paid to your loan.