Since August 2022, it seems like everyone has been talking about the Federal Government’s Student Loan Forgiveness. But what exactly is in this plan and who will it affect?
As it turns out, more than 800,000 Massachusetts borrowers with federal student loan debt are eligible for student loan forgiveness and even more may be aided by the less talked about aspects of the plan. The entire plan includes targeted debt relief, changes to income-driven repayment plans, changes to the Public Service Loan Forgiveness (PSLF) program and more.
What is the federal student debt relief plan?
1. Targeted debt relief (aka student loan forgiveness): This portion of the plan is what you have probably heard about in the news. Eligible borrowers will have up to $20,000 in federal student loan debt cancelled, pending criteria including income and if the borrower received a Pell grant.
2. Adjustments to income-based repayment and PSLF program: The plan includes capping income-based repayment plans for low-income federal student loan borrowers at 5% of discretionary income (current plans have a 10% cap). It also resolves some long-standing issues with the Public Service Loan Forgiveness program to ensure that borrowers who work the required number of years in government, nonprofits or served in the military receive their promised credit toward loan forgiveness.
3. Efforts to reduce the cost of college: According to the College Board, the total cost of both four-year public and four-year private college has nearly tripled since 1980, making borrowing for college a lifelong financial burden for many. The third part of this plan addresses the need to protect future students and taxpayers by reducing the cost of college and holding schools accountable when they raise prices.
I’m eligible! Now what?
If you think you (or your child) is eligible, it is best to sign into your Federal Student Aid account to sign up for text alerts and ensure all of your contact information is up to date. You should do the same for your student loan servicer – this information can be found in your Federal Student Aid account if you are unsure who services your federal loans.
While it is possible that some debt relief will happen automatically, be sure to check in with your loan servicer and apply through the Department of Education application if you are unsure.
An online application is slated to open in October 2022. The Department of Education has a subscription page to get an alert when the application is open. Applications for the program will be accepted until December 31, 2023.
It’s important to note that, where there is access to money, there are scammers. The precautions you would take to keep your bank account information and passwords safe apply to your FAFSA ID and password. Be wary of unsolicited calls asking you about your student loans and report any scam attempts to the FTC.
If you have questions, the Federal Student Aid page has an FAQ that may help.
It’s also important to keep in mind that federal student loan repayment is scheduled to resume in January 2023. Because of application processing time, it may benefit you to apply before mid-November if possible. If you still carry a loan balance after debt relief, your monthly payments may change as it will be recalculated.
Any kind of loan or debt can impact your long-term financial plans. If you are relieved of some student loan debt and need guidance on how to set new financial goals, we’re here to help. Our Learning Center offers helpful advice for budgeting, reaching financial milestones like homeownership or retirement and our bankers serve as trusted advisors as you navigate the many changes in your financial life.
