Even if you’ve paid off your student loans, you still might qualify for forgiveness
President Joe Biden announced a plan to cancel student loan payments for millions of borrowers, extended a payment moratorium for others and left many asking questions about how it all will work.
The president’s Aug. 24 move includes plans to forgive up to $20,000 in student loan debt per borrower, extends the repayment pause through Dec. 31 and makes repayment more attainable for borrowers when it resumes.
Borrowers who make less than $125,000 annually will see up to $10,000 of their debt canceled. Pell Grant recipients will see up to $20,000 in forgiveness.
For married couples, the income requirement to qualify for forgiveness is less than $250,000 combined annually per household. Any borrower whose income was below the cap in either 2020 or 2021 will qualify, senior administration officials told CBS’ Kathryn Watson.
The White House says its plan will benefit up to 43 million borrowers and cancel debt completely for up to 20 million borrowers with lower outstanding balances. The administration has not said exactly when the loan forgiveness process will begin, however.
Biden’s sweeping plan has left many borrowers with questions about what comes next. Here’s what you need to know.
If you paid your loans during the moratorium...
While the debt relief plan only applies to borrowers currently holding a balance, any borrower who made a payment on their student loans since the start of the repayment moratorium on March 13, 2020, is eligible for a refund, according to the office of student aid.
If you have made any payments towards your student loan balance since March 2020, even an automated payment, you can contact your servicer for a refund.
Borrowers who fall within the $125,000 income cap who restore their balance can then apply the allotted forgiveness to their reclaimed debt.
For example, if you continued to pay your student loans for the past two years and paid off a $7,000 balance, you can contact your servicer to refund all the payments made since March 2020. Once your balance is reinstated, you will be able to apply your $10,000 credit.
In other words, you can get a full refund for any payments made less than $10,000 if they were made during the COVID-19 payment moratorium.
However, if you made payments in the past two years but still owe more than $10,000, or $20,000 if you received a Pell Grant, then this refund strategy won’t be beneficial to you.
What is a Pell Grant?
Under the Biden-Harris administration’s plan, federal Pell Grant recipients will received $20,000 in loan forgiveness if they make less than $125,000 per year or a combined $250,000 with their partner if they are married.
Pell Grants are grants the federal government offers to undergraduate students ”in need of exceptional financial aid” who have not earned a bachelor’s, graduate or professional degree, according to the Federal Office of Student Aid. Unlike loans, Pell Grants do not need to be repaid under most circumstances.
The maximum amount offered to Pell Grant recipients changes annually, according to the office. For the 2022-2023 school year, the maximum amount students can receive is $6,895. Each student’s grant size is determined by their expected family contribution (which is based on factors like household income, family size and whether the family receives government benefits, among others), their school’s tuition costs, status as a full- or part-time student and plans to attend school for the full school year or less.
To determine if you received a Pell Grant, you should visit the Federal Student Aid website at Studentaid.gov. Once you log in to the website, you can review your student aid report.
Who pays for canceled debt?
Biden’s plan will add roughly $330 million to the United States’ deficit over a 10-year period, according to estimates from the Penn Wharton Budget model.
Some experts have expressed concerns this will have adverse impacts for taxpayers in the United State.
Based on Penn’s data, the plan could cost the average taxpayer an additional $2,000 or more, according to a study from the National Taxpayer Union Foundation’s Director of Federal Policy, Andrew Lautz.
“The $329 billion cost of student debt cancellation would be $329 billion previously borrowed from the federal government and not returning to the Treasury,” Lautz said. “Policymakers will need to make up for that gap in the future with government spending cuts, tax increases, more borrowing, or some combination thereof.”
On Wednesday afternoon, Biden defended his decision, arguing that “we pay for it by what we’ve done,” during a news conference.
The president said the country is on track to cut the national deficit by $1.7 trillion by the end of the fiscal year, and he pointed out that his recently passed Inflation Reduction Act will cut another $300 billion over the next decade and over a trillion dollars over the next two decades.
“The point is this: There is plenty of deficit reduction to pay for the programs — cumulative deficit reduction — to pay for the programs many times over,” Biden said.
The short of it: taxpayers will probably foot some of the bill sooner or later, but how much that will be is not yet clear.
This story was originally published August 25, 2022 at 12:26 PM with the headline "Even if you’ve paid off your student loans, you still might qualify for forgiveness."
