- Biden announced up to $20,000 in student loan forgiveness in August.
- Most borrowers will have to apply for the relief, while eight million should automatically qualify.
- This is how the Department of Education will determine that automatic relief.
One-time student loan forgiveness could hit millions of borrowers’ accounts by the end of the year, and some could be eligible for relief automatically.
In late August, President Joe Biden announced up to $20,000 in student loan forgiveness for Pell Grant recipients earning less than $125,000 a year, and up to $10,000 in relief for other federal borrowers with the same income limit.
While an application form will be released in early October that borrowers can fill out to apply for relief, the Department of Education estimated that about 8 million federal borrowers should automatically receive loan forgiveness without any additional action on their part.
“There’s an entire generation now saddled with unsustainable student loan debt in exchange for a college degree,” Biden wrote On twitter. “We’re making incredible progress bringing relief to those who need it and fixing the student loan system to make it work for working people.”
According to the FAQ posted on the studentaid.gov website, there are two ways the department will determine if you are automatically eligible for relief:
- The Free Application for Federal Student Aid (FAFSA)
- Income-Based Refund Requests.
Students or parents can submit a FAFSA form during college to determine the amount of federal student aid they may receive to help cover tuition costs. Borrowers can apply for and enroll in income-based repayment plans to provide them with an affordable monthly student loan payment based on income after graduation.
If parents or borrowers submitted their income data for tax years 2021 or 2020 for either of those programs, the department will use that information to determine if borrowers meet the income requirements (earning individually less than $125,000 a year) for apply for student loan forgiveness. The department noted that if it has borrower data for both years, it will choose the year with the lowest income.
All borrowers determined to receive relief will automatically receive an email and text message from the department, and the department will provide that information to student loan companies to process that relief.
A new income-based repayment plan is also expected to be implemented that is intended to make monthly payments more affordable and prevent interest from being added to a borrower’s principal balance. That plan will be part of the department’s rulemaking process with implementation scheduled for July of next year, along with reforms to other targeted loan forgiveness programs such as Public Service Loan Forgiveness and forgiveness for totally and permanently disabled borrowers.