As you may have seen in the news this past week, President Biden announced some significant changes to federal student loans, including loan forgiveness. Many of the details of how these changes will be implemented are still unclear, but these have the potential to significantly benefit those who have federal student loans.
For those who make less than $125,000 annually (for individuals) or under $250,000 (for married couples), you are eligible to have $10,000 of your federal loans forgiven. Private loans do not qualify.
If you received a Pell Grant in college (a grant given by the Federal government to help families with low to middle incomes pay for college) and meet the income requirements, you are eligible for an additional $10,000 of federal loan forgiveness, for a total of up to $20,000 of forgiveness.
The $10,000 in loan forgiveness applies to all federal direct student loans, including undergraduate, graduate, Parent PLUS loans, and even loans for students currently in college, in which case the parent(s) of the dependent college student would need to qualify based on their income(s).
Some people will see this forgiveness happen automatically if the Department of Education already has their necessary income information. With that being said, we recommend that anyone who has federal student loans fill out the application that the government has said will be coming out in the coming weeks to ensure they receive the forgiveness that they qualify for. If you would like to be notified when this application is open, you can sign up at the Department of Education’s subscription page.
If you have made payments on your student loans during the Covid-related forbearance period that started on March 13, 2020, you can request a refund of all the payments made since that time, however, it is unclear at this point whether you can attain additional forgiveness by doing this. To request a refund of these payments, contact your loan servicer.
Loan Forbearance Extension
The Covid-related federal student loan forbearance that has been in place since March of 2020 has been extended until December 31, 2022. The government says that this will be the final extension.
Proposed New Income Driven Repayment (IDR) Plan
The government has proposed a new IDR plan that would decrease the required monthly payments for those on this plan as compared to the IDR plans currently available. The required payment would decrease from 10% offered under the most recent IDR plan to just 5% of discretionary income for undergraduate loans, while borrowers with both undergraduate and graduate loans will pay a weighted average rate. This plan also includes a higher threshold for calculating discretionary income which would further lower the required monthly payments. If your original loan balance was $12,000 or less, this new plan would also offer forgiveness after making payments for 10 years rather than 20 years.
We expect there to be much more information coming out about these changes in the coming weeks and months. If you want a personalized look at how this could affect your situation or are just looking for a plan for your finances in general, we can help. Schedule your free introductory call today.
About Guide Financial Planning
Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.