The Student Loan Debt Relief Plan, announced August 24, 2022, provides targeted debt relief to low- and middle-income families, extends the student loan repayment pause through the end of 2022, and proposes to make the student loan system more manageable for current and future borrowers.
According to the Federal Student Aid office’s announcement, the U.S. Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for households.
Although Illinois State alumni default on student loans at a rate (3.6%) less than half the national average (7.3%), the Student Loan Debt Relief Plan may impact current, former, and future students alike. Illinois State Director of Financial Aid Bridget Curl answered some of the most asked questions associated with the plan.
How does this impact current students who have taken out federal loans?
Bridget Curl: “It is our understanding that loans disbursed on or before June 30, 2022, may qualify for this relief plan, assuming the borrower meets all criteria. New loans disbursed for this current fall term do not meet the required disbursement date.”
What does it mean for graduates and former students with existing student loans?
Curl: “The federal government has indicated that undergraduate student loans, graduate student loans, and Direct PLUS Loans for parents may be eligible, assuming borrowers meet all criteria. This could significantly reduce or completely remove some former students’ debt.”
What about individuals who have paid off some or all their loans?
Curl: “The debt forgiveness is expected to apply only to outstanding debt. Some borrowers, who qualify for the debt forgiveness program, have called asking about payments they made during the payment pause that could have been forgiven. For example, a borrower who made voluntary payments in 2021 reducing their outstanding balance to $9,000 would have forgiveness capped at $9,000 versus $10,000. According to the U.S. Department of Education’s Federal Student Aid office, students can request a refund for any payments they made during the payment pause (beginning March 13, 2020). Students should contact their loan servicer directly to inquire about this process, determine if it is in their best interest, and find out how it impacts their balance owed.”
How does this impact prospective students yet to apply for a student loan?
Curl: “Although a great deal of attention has been paid to providing targeted debt relief to low- and middle-income families, the Student Debt Relief Plan includes a proposal to create a new, income-driven repayment plan that could impact prospective student borrowers by reducing future monthly payments. Details of this proposal are available at the Federal Student Aid website.”
What are the important dates and deadlines?
Curl: “The U.S. Department of Education has estimated that nearly 8 million borrowers may be eligible to receive relief automatically. We don’t know exactly when this will occur and encourage student borrowers to watch for any additional updates from their loan servicers. If the federal government doesn’t have income data to make the automatic determination, they plan to launch a simple application by early October. Once the application is submitted, it may take up to six weeks for processing. If an eligible borrower must submit an application, they are encouraged to do so by November 15, 2022, in order to receive relief before the payment pause expires on December 31, 2022.”
What resources would you suggest for individuals with additional questions?
Curl: “Borrowers can sign up for federal updates at the U.S. Department of Education website. Additionally, we encourage borrowers to locate their loan servicer contact information if they don’t have it. For assistance in determining loan servicer information, borrowers can visit the Federal Student Aid website’s dashboard or call the Federal Student Aid Information Center at (800) 433-3243.”
