The Federal Student Loan Debt Relief application just went live in its beta format and the public is rushing to submit their applications for a chance to have up to $20,000 in student loans forgiven, but a certain segment of the population should wait before applying for student loan forgiveness or they may miss out on potentially thousands of dollars of student loan debt that they may not need to replay.
Income Qualification Rules
Before we discuss who should wait before applying, let’s talk about who will qualify for the new Federal Student Loan Debt Relief program. According to the federal website individuals who made less than $125,000 in 2021 or 2020 OR families that made less than $250,000 in 2021 or 2020 will qualify. If you filed taxes, the government will allow you to use your adjusted gross income for the income qualification determination. All you need to do is certify that your income meets the qualification rules. The U.S. Department of Education expects that 95% of borrowers should meet the income requirement.
How Much of Your Student Loan Is Forgiven
Most individuals who qualify for the Federal Student Loan Debt Relief will qualify for up to $10,000 in debt forgiveness. If you have ever received a Pell Grant which was designed for students who demonstrated a financial need, the amount that can be forgiven rises to up to $20,000. Federal officials estimate that up to 40 million Americans will benefit from this program.
Why You Might Need to Wait
The urge to immediately apply for the program is understandable, especially since student loans are expected to enter repayment status in January, but there are certain groups of people who may benefit from waiting just a bit longer. Since applications will be open through December 2023, there is plenty of time to wait but the groups listed below should consider whether waiting would benefit them more than applying right now.
- If have not filed your 2021 taxes and your expected income from the latter filing will help you qualify, you should wait. The application is currently considering 2020 and 2021 income, however rules are still evolving. Many people have not filed their 2021 taxes yet. If you suspect that your 2021 income would allow you to qualify, you should absolutely wait.
- If you qualify for Public Student Loan Forgiveness. The PSLF program forgives the balance of Direct Federal Student Loans as long as you meet the requirements including working for an approved employer and making 120 payments. The application deadline for 2022 is October 31, 2022. It makes sense to apply for that forgiveness program first so that the entire balance can be forgiven if you qualify. You should be especially mindful of this if you have a combination of Direct loans and any other federal loan that may qualify for debt relief. The additional loan types that qualify for debt relief are the Federal Family Education Loan (FFEL), Federal Perkins Loan Program loans held by ED, and defaulted loans (includes ED-held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, parent PLUS, graduate PLUS; and Perkins loans held by ED).
- If you paid your student loans during the COVID-19 Student Loan Payment Pause which brought your balance below the maximum amount that you are eligible to have forgiven, you may want to consider requesting those extra payments back. For example, you are eligible to have $10,000 forgiven. During the pause, you make payments totaling $5,000 which brought your balance down to $8,000. Yes, the entire current balance would be forgiven, but you are missing out on having $2,000 in additional payments forgiven as well. Some student loan servicers advise that you call them to request a refund of that additional amount and wait for the refund to be processed before applying for debt forgiveness. The information on the actual Federal Student Loan Debt Relief application says that they will now automatically credit you back for extra payments made during the pandemic once they process your application. The individuals that the application site advises to request a refund before applying is anyone who actually paid their loan off in full before the pandemic pause. That way you can get the maximum amount that you can get your money back up to the maximum that will be forgiven.
If none of these particular situations apply to you, then by all means, head right over to Federal Student Loan Debt Relief application and submit your application right away. There is no incentive to wait, especially if your student loans enter repayment in January. The goal of an early release of the application is to have cancellations in place by the time repayment begins for most student loan holders.