How student loan forgiveness will be applied to your debts: 3 factors take priority

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The US Department of Education continues to provide new information about how President Joe Biden’s historic student loan forgiveness plan will work.

Some of the latest details include how forgiveness will be applied to your balance: who can get federal student loan relief, and in what order.

Experts say it’s not unusual for someone to have multiple student loans. “I estimate them to be about eight to 12 per borrower,” said higher education expert Mark Kantrowitz.

Here’s to know the latest.

Which loan of mine will be forgiven first?

Here’s how qualified loans are prioritized when forgiveness is applied:

  1. Defaulted Loans: Kantrowitz said the first forgiveness will be applied to any loans you default.
  2. Highest interest rate: The relief will then be directed on your loans with the highest interest rate, he said.
  3. Loan Type: Subsidized loans will be canceled before subsidized loans.

“If all else is equal, which is unlikely, they will apply it to the most recent loan,” Kantrowitz said. “If that doesn’t make a difference, they’ll apply it to the loans with the lowest balances.”

How much debt can I get forgiven?

President Joe Biden announced in August that most federal student loan borrowers would be eligible for some forgiveness: up to $10,000 if they didn’t receive the Pell Grant, a type of aid available to low-income graduate students, and up to $20,000 if they didn’t. He did. (Here’s how to know if you’ve got one.)

If your remaining student loan balance is less than the forgiveness amount you are eligible for, you will only receive that amount. However, you can request a refund for payments made during the pandemic.

Borrowers who earn more than $125,000 per year, or married couples or heads of families earning more than $250,000, are excluded from relief.

Are my loans eligible?

The big picture, the vast majority — about 37 million borrowers — will be eligible for forgiveness, depending on their loan type (and as long as they fall within the income threshold), as their loan was granted by William D. It’s called Ford. Federal Direct Loan Program.

This includes direct Stafford loans, and all direct subsidized and unsubsidized federal student loans. Parent Plus and Grad loans are also eligible for relief under the Direct Program. About 5 million borrowers may qualify with federal family education loans (FFELs) held by the government.

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The Department of Education recently said it is trying to find a way to provide relief to the other 5 million borrowers who have commercial FFEL loans, meaning the loan is with a private company. In the meantime, those with these loans can contact their servicer or Studentaid.gov to have them consolidated into the main Federal Direct program.

You can find out where your FFEL loans are placed at Studentaid.gov. Sign in with your FSA ID and then go to the “My Ed” tab, and search for your loan details.

Private student loans are not eligible for cancellation.

What if I still have balance after forgiveness?

Given that the average student loan balance exceeds $30,000, many people will Even then There is debt even after forgiveness.

But your monthly payment, once it starts again in January, could be lower. That’s because the Department of Education plans to “reevaluate” borrowers’ new balances. It’s a strange term, which means it will recalculate your monthly payments based on your new balance and the number of months you have left on your repayment timeline.

Kantrowitz provided an example: Let’s say you currently owe $30,000 in student loans with a 5% interest rate. Before the pandemic, you paid about $320 a month over a 10-year repayment term.

If you receive $10,000 in student loan forgiveness, your total balance will drop by a third, and your monthly payments will drop by a third to about $210 per month. Your repayment timeline remains the same as before.

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