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Student Loan Forgiveness

Apply For Student Loan Forgiveness

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The White House has announced that the Department of Education (DOE) will cancel a portion of student loans. DOE will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE. Up to $10,000 in debt cancellation will be provided to non-Pell Grant recipients. Again, this is for loans held by the DOE. There are stipulations to qualify for this student loan forgiveness. Student loan borrowers must have an individual income of less than $125,000 ($250,000 for married couples). To facilitate this student loan relief, the pause on federal student loan repayment is being extended through December 31, 2022. As such, federal student loan repayment will begin in 2023. But how do you apply for student loan forgiveness?

This post will not address the fairness of loan forgiveness and will only provide information as to the latest announcement.

Who Will Get Student Loan Forgiveness?

This student loan forgiveness is very targeted in view of those who are eligible to take advantage of this program. According to the White House, current estimates is that nearly 90 percent of relief will go to people earning less than $75,000 and that roughly 20 million borrowers could have their debt completely canceled. The United States is estimated to have a population of 350 million people, so essentially almost 6% of the population will have their student loans completely forgiven. 

The DOE estimates that, among borrowers who are eligible for relief, 21% are 25 years and under and 44% are ages 26-39. More than a third are borrowers age 40 and up, including 5% of borrowers who are senior citizens.

Pell Grants

A specific provision of the federal student loan forgiveness plan is that those who received Pell Grants my have up to $20,000 of their federal student loan debt forgiven. What are Pell Grants? Federal Pell Grants are typically awarded only to undergraduate students who display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree. Unlike a loan, Pell Grants do not have to be repaid, except under certain circumstances.

According to estimates, 7 in 10 college graduates with federal student loans also received a Pell Grant, and Pell Grant recipients have on average an additional $4,500 more debt than other college graduates.

Applying For Student Loan Forgiveness

The White House has noted that applications for federal student loan forgiveness will be made available earliest in about a month to two months. As such, the application is expected in or about October 2022. Once the application is rolled out, borrowers are advised to apply by November 15, 2022. This will allow balances to be lowered or eliminated before the student loan payment pause ends on December 31, 2022.

While some borrowers will need to apply for federal student loan forgiveness, others will not. About 8 million borrowers, whose income is already on file at the DOE will have their loans automatically forgiven without having to apply. For those for whom the DOE does not have a record of their income, they should  sign up on Studentaid.gov to be notified when the federal student loan forgiveness application form goes live.

New Proposal

In additional to federal student loan forgiveness, the DOE is also proposing a new income-driven repayment plan. This plan will cap monthly payments for undergraduate student loans at 5% of a borrower’s discretionary income. This would be half of the rate that borrowers must pay now under most existing plans. This means that the average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers. 

Conclusion

The White House has announced that the DOE will cancel a portion of student loans. DOE will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE. Up to $10,000 in debt cancellation will be provided to non-Pell Grant recipients. Again, this is for loans held by the DOE. There are stipulations to qualify for this student loan forgiveness. Student loan borrowers must have an individual income of less than $125,000 ($250,000 for married couples). To facilitate this student loan relief, the pause on federal student loan repayment is being extended through December 31, 2022. As such, federal student loan repayment will begin in 2023. Sign up on Studentaid.gov to be notified when the federal student loan forgiveness application form goes live.

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praying for student loan forgiveness

Is Student Loan Forgiveness Fair?

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It does not matter how much is forgiven and it really does not matter the reason. Forgiving student loans is a divisive issue. There is one main group that will directly benefit from student loan forgiveness. This group includes those for whom student loans are forgiven. On the other hand, there will aways be a number of groups that will be aggrieved. This group of the aggrieved includes at least those who have paid off their student loans, those who never took out student loans and those who did not have the opportunity to take out student loans because they did not attend college.

Student Loan Forgiveness

There is a student loan problem. Some students were victims of predatory lending from opportunist institutions. In some cases, students were given loans and then obtained worthless degrees. In some cases, the institutions were not up to par academically. For some, the college was closed down and students were stuck with student loans but no degree. For others, student loan terms were not clearly explained and students now owe more than they borrowed. In all cases, for those affected, it is likely that they are stuck with a mountain of student loans and no true path to ever pay off the borrowed amount plus the accruing interest.

On balance, should these students have done their due diligence? Should these students have read the fine print and better understood what they were signing up for? Also, should there have been more government oversight to prevent institutions from selling these subprime student loans to vulnerable students? Something to think about.

Students Who Paid Back Their Student Loans

There are some students and adults who have now paid back their student loans. Essentially, they made it a priority to not take out more than they needed during their school years. Many of these individuals did not attend their dream school because of the cost. Instead, they settled for a less expensive option. They may have also worked extra jobs. Some did not take fancy spring break trips while in college. Others have forgone buying nicer homes or cars. Instead of spending, these students were cost conscious. They buckled down and payed back their student loans.

How would you feel if you were one of these students when you hear of others getting student loan forgiveness? You will likely feel robbed. You have made the sacrifices and paid back what you owed. Now, you are being penalized for your diligence, being proactive and responsible. Would you view this a being fair?

Students Who Did Not Take Out Student Loans

Let’s face it, we live in an unequal society. There are a group of students who attended college and did not have the need to take out student loans. This could have been a result of their parents saving over time and allocating funds specifically for college. For others, their parents were in the position to pay their tuition as they went through college. Still, there are many who simply worked during college and were able to make enough to pay their costs or obtained scholarships.

For those who prepaid for college, those who worked multiple jobs to pay their tuition, and those who studied and obtained scholarships, how is student loan forgiveness viewed? Will they view student loan forgiveness as a penalty? Why work hard during college and forgo all the parties, why prepay for college, why work hard and obtain scholarships when the student loans will be forgiven anyway? 

Those Who Did Not Attend College

Of the groups that will likely view student loan forgiveness in a bad light, those who did not attend college will likely be the most upset. They are the most likely to be upset because as tax payers, they may view student loan forgiveness as paying for something they did not have the opportunity to part take in. These individuals are essentially paying for someone else’s college education or mistake. They may also see student loan forgiveness being applied to college educated citizens as causing a further divide between the have and the have nots. Some who will be helped by student loan forgiveness, where they attended reputable colleges, may end up earning more than those who did not attend college. So in effect, as a tax payer, those who did not attend college would be further subsidizing these individual’s lifestyle. For many, this will be viewed as being unfair. 

The Greater Good

No matter your stance on student loan forgiveness, one thing to consider in this student loan forgiveness debate is the greater good. Will forgiving a portion of student loans help the overall society in general terms. If citizens are not buried by student loan payments, will this translate into increase economic activity as more funds will be available to spend. If this works perfectly, all of society will benefit. However, will this affect personal responsibility and the motivation to live within ones means if there is a possibility that your debt will be forgiven?

Whatever the decision with regard to student loan forgiveness, one thing is for sure, the debate will continue.

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