When will student loans be forgiven? What Kentucky residents should know about debt relief

On your mark, get set.

Federal student debt forgiveness applications are about to drop, and you don’t want to be caught flat-footed.

People who earned $125,000 or less (or $250,000 for households) in 2020 or 2021 are eligible for at least $10,000 in federal student loan debt forgiveness. Recipients of Pell Grants — usually awarded to low-income undergrads — can receive up to $20,000 in relief.

Roughly 40 million borrowers are eligible for some student debt relief, with about 20 million expected to have their entire balance canceled, the White House has said. And the impact in the Bluegrass State will be felt among thousands of Kentuckians.

If you're one of the lucky ones, here is what you should do to ensure some or all of your debt is forgiven before repayments restart in January:

When can I apply for student loan forgiveness?

The federal government has said the application will be available in early October. In late September, White House press secretary Karine Jean-Pierre said there was “no date set yet” for the release of the application form, but confirmed it would still be released in October.

“We’re trying to give relief to everyday Americans,” Jean-Pierre said.

Who qualifies for student loan forgiveness?

Only borrowers with federal loans are eligible for relief if their individual income is less than $125,000 or $250,000 for households. Pell Grant recipients can get up to $20,000 canceled, and everyone else up to $10,000.

Public service workers (people working for federal, state, local, tribal government, military, or a nonprofit organization) with at least 10 years of collective service may be eligible to have all their debt canceled. 

The government recently tweaked the requirements for the program to allow more borrowers to qualify for forgiveness, but it's a limited-time offer. Interested borrowers must apply before Oct. 31 if they want to take advantage of the temporary flexibility.

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A parent with parent PLUS loans for their child may qualify for debt relief if they meet the income eligibility criteria.

Private loans aren’t eligible for any forgiveness.

Who in Kentucky will be impacted?

More than 40 million people nationewide are likely to have at least some debt canceled, including a high number of Kentucky residents.

Government data from March shows just over 597,000 people in the Bluegrass State have federal student loans, accounting for nearly $20 billion in debt. It's likely a large portion of that total will qualify, as figures from the U.S. Census show about 22% of households in the state bring in $100,000 or more annually.

In an interview with Link NKY, Kentucky Center for Economic Policy research director Ashley Spalding said her organization found more than 209,000 people in Kentucky owe $10,000 or less and "can expect to have their balances wiped out entirely.”

How can I tell if I had a Pell Grant?

Create an account (an FSA ID) at StudentAid.gov or log in if you already have one. Make sure your contact information is accurate. If you’ve forgotten your login information, use the Forgot My Username or Forgot My Password links or go to the tips page for help.

You’re not required to have an FSA ID to apply for forgiveness, but this can be extremely helpful. It’s where for example, you’ll find if you received a Pell Grant while in college. It will also show your loan servicer(s), types of loans you have and what you owe. (If you received a Pell Grant before 1994, that information won't display on StudentAid.gov, but you'll still receive the full benefit. The Department of Education has a record of every Pell Grant award.)

The government will send you updates by email and text message, so make sure to sign up to receive text alerts.

Plenty of people in Kentucky have gotten Pell Grants — over 40% of undergraduate students received the grants annually for the 2009-10 through 2019-19 academic years, according to data provided by the Kentucky Center for Economic Policy.

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Alert your loan servicer

Make sure your loan servicer has your most current contact information so they can reach you. If you don't know who your servicer is, you can log into your StudentAid.gov account and see your servicer(s) in your account dashboard.

Your servicer(s) will process the relief and notify you when the relief has been applied to your account. The White House says most borrowers will see the forgiveness reflected in their accounts within six weeks.

If you still have a balance after debt forgiveness, your monthly payment will be recalculated based on your new balance, potentially reducing your monthly payment. Your loan servicer will let you know what your new payment amount is. The White House says borrowers should apply by mid-November to receive relief before the payment pause expires on Dec. 31. However, the application window will stay open through 2023.

How do I apply for student loan forgiveness?

The application for student debt relief is expected to be available this month. Once it is ready, you should receive an email alerting you or you can keep checking StudentAid.gov for updates.

Borrowers won't need to upload any documentation or have an FSA ID to submit their applications. Initially, the application will only be available online. A paper version will be made available later.

As many as 8 million borrowers will receive automatic forgiveness because the federal government already has their income and loan information — if they don't opt out. The department uses Free Application for Federal Student Aid, or FAFSA, and income-driven repayment application information to identify those borrowers — or their parents, as appropriate — who have submitted income data for tax years 2020 or 2021. 

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Can I get a refund of past student loan payments?

Yes, borrowers may be eligible for refunds, but only if they made payments during the pandemic that brought their balance below the relief they would be eligible to receive. So if you had $11,000 in debt before March 13, 2020, and paid it down to $9,000, you could receive a $1,000 refund.

Demonstrators called for the cancellation of student loan debt outside the U.S. Department of Education earlier this year. The demonstration was organized by the Debt Collective, a group that bought and discharged student debt at Bennett College, an all-women's school.
Demonstrators called for the cancellation of student loan debt outside the U.S. Department of Education earlier this year. The demonstration was organized by the Debt Collective, a group that bought and discharged student debt at Bennett College, an all-women's school.

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Which loans are eligible for forgiveness?

Federally held subsidized loans, unsubsidized loans, parent PLUS loans, and graduate PLUS loans are eligible. Consolidated loans also qualify for relief as long as all the combined loans that are federally held were taken out on or before June 30.

Last week, the Education Department said borrowers with Federal Family Education Loans that are commercially held can no longer apply for debt relief by consolidating their loans into the Direct Loan program. But they will be eligible if the loans were consolidated before Sept. 29.

When asked about the Federal Family Education Loans borrowers who no longer qualify for the program, Jean-Pierre said the goal has always been to get relief to borrowers as fast as possible.

“This change helps us achieve that,” she said.

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What should I do to avoid scams?

Scammers could be out there looking to take advantage of the student loan forgiveness plan. Be careful.

The U.S. Department of Education has a few tips on how to avoid getting scammed when loan forgiveness begins.

  • Keep an eye out for common claims with urgency. Calls and emails that say “Act immediately to qualify for student loan forgiveness before the program is discontinued" might be your first clue. You can find other questionable language to look for from the Federal Student Aid here.

  • Don't pay for help from debt relief companies. You could be eligible for other kinds of loan forgiveness and lower monthly payments through your service provider.

  • Confirm you are talking to a direct partner of the U.S. Department of Education. Some examples of service providers include FedLoan ServicingGreat Lakes Educational Loan Services and ECSI, among several others.

The Higher Education Kentucky Student Loan Corporation advises to never pay an up-front fee and to keep your FSA ID private, among other recommendations.

If you have uncovered student loan forgiveness scam, you can start by submitting a claim to the Federal Student Aid agency here. And if you've been involved with a scam, the FSA has options to pursue like contacting your student loan provider, contacting your bank to stop payments and filing complaints with different federal agencies.

Is this for real?

Several lawsuits claim the loan forgiveness plan is harmful or that the president is overstepping his authority. Any one of them has the potential to block the plan or delay it.

Jean-Pierre said she couldn’t say if there would be additional changes to the program that would further winnow the pool of eligible borrowers (and serve to circumvent a lawsuit).

She did say it was “unfortunate” that some people in Republican states were making it more difficult to give “a little bit of a breathing room to working Americans.”

Courier Journal reporter Morgan Watkins contributed.

This article originally appeared on Louisville Courier Journal: Student loan forgiveness applications to open soon: What to know in KY