You may need to take extra steps to qualify for Biden’s fast-tracked student loan forgiveness

Personal finance

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The Biden administration announced last week that it would fast-track its plan to deliver student loan forgiveness for certain borrowers in its new repayment plan.

However, some people may have questions about the news, which was not exactly straightforward. For example, while the relief will be automatic for many, others will need to take steps to qualify for it.

Meanwhile, “many are unaware of the opportunity,” said Elaine Rubin, director of corporate communications at Edvisors.

Here’s what to know about the development for borrowers.

Relief is limited to a select group

The latest round of relief is a result of the U.S. Department of Education’s new repayment program, called the Saving on a Valuable Education, or SAVE, plan. Borrowers were first able to enroll in SAVE, which the Biden administration has called “the most affordable repayment plan ever created,” last August.

The SAVE option reduces the monthly federal student loan payments for undergraduate borrowers from 10% of discretionary income to 5%, and shortens the timeline to forgiveness for those with small balances from the usual required 20 years or 25 years. Those who took out $12,000 or less in their undergraduate or graduate postsecondary studies get any remaining debt erased after just a decade.

It is the latter provision the Biden administration is fast-tracking. Due to the timeline of regulatory changes, it was originally expected to go into effect this summer.

Instead, the U.S. Department of Education said last week that, “borrowers enrolled in SAVE who are eligible for early forgiveness will have their debts canceled immediately starting next month, with no action on their part.”

As of early January, 6.9 million borrowers were enrolled in the new SAVE plan, according to the Education Dept.

“A borrower who is already enrolled in the SAVE plan should see this forgiveness automatically,” Rubin said.

Borrowers not in SAVE need to take steps to qualify

Borrowers who believe they’re eligible for this relief but who haven’t yet signed up for SAVE, “should do so immediately,” said higher education expert Mark Kantrowitz.

You can see if you’re eligible for the program and try to enroll at Studentaid.gov. If you give consent to import your tax information on your application, you may not need much if any paperwork, Rubin said.

“However, if a borrower has had a change in their financial situation, they can opt to provide other documentation to demonstrate their current income,” she said. “Borrowers who do not earn income can self-certify that they did not earn income.”

Generally, only Direct loans qualify for the SAVE plan, including Direct subsidized, Direct unsubsidized and Direct PLUS loans.

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Have another federal loan type? Don’t despair yet.

You may be able to consolidate your currently ineligible federal loans into the Direct program. Consolidating before your eligible payments are calculated should not erase your progress toward forgiveness, experts say.

Once your debt is rolled into a Direct Consolidation Loan, you should be able to access the SAVE plan.

“Borrowers who believe they are eligible should consider consolidating their loans as soon as possible to avoid extra payments on a debt that could be forgiven,” Rubin said.

Borrowers in default, meanwhile, should take advantage of the Fresh Start program to become current on their loans. “If a borrower currently has a loan in default, the defaulted loan is not eligible to be repaid under a SAVE plan,” Rubin said.

After a borrower’s enrollment in the SAVE plan has been completed and confirmed by their servicer, any remaining balance could be forgiven within two to three months, the Education Dept. says.

You may be closer to forgiveness than you think

If you don’t know how long you’ve been paying on your student loans, you can call you servicer to try to find out. If you’re unable to reach someone on the phone, sending a message via the company’s website may work, Kantrowitz said.

Months during the pandemic-era payment pause, which spanned from March 2020 to September 2023, count toward your forgiveness timeline, whether or not you made payments.

Some people who took out more than $12,000 may also benefit from a shorter timeline to debt cancelation.

The shortest waiting period, under SAVE, is 10 years for those who took out $12,000 or less. But then the repayment term increases for every additional $1,000 you borrowed over that amount. Those who owe between $12,001 and $13,000, for example, could get forgiveness in 11 years of repayment.

If you are expecting the forgiveness and do not receive it, you can call the Federal Student Aid Information Center at 1-800-4-FED-AID to learn more, Kantrowitz added.

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