Student Loan Forgiveness: Key Updates and Other Initiatives You Could Benefit From

This story is ongoing and will be updated as new developments emerge.

The one-time student loan debt forgiveness plan outlined by the White House last August was set to cancel up to $20,000 in debt for tens of millions of eligible federal student loan borrowers. Due to legal challenges that have temporarily blocked the program by the courts, however, applications were halted just a few months after the sweeping debt cancellation plan was announced. The U.S.Department of Education (ED) is currently seeking to overturn those orders.

Given the legal challenges surrounding the student loan debt relief program and the subsequent suspension of applications, everyone wants to know when the student loan forgiveness program could get back on track.

Here’s where the one-time federal student loan forgiveness program is in the legal process, how it was designed to work, and other federal student loan relief initiatives that are continuing that you could benefit from.

Key Updates: When Could the Student Loan Forgiveness Program Restart?

In response to multiple lawsuits challenging the legality of the program late last year, federal courts blocked the initiative,causing the subsequent suspension of applications to the program—and tens of millions of borrowers have yet to receive any relief. This year the dispute is headed to the Supreme Court with oral arguments scheduled for late February.

In the meantime, the Education Department has extended the student loan payment moratorium to June 30, 2023 to give the Supreme Court time to hear the case in this term. Payments are slated to restart 60 days after litigation has been resolved or the Education Department is permitted to implement the program. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023—payments will resume 60 days after that. The Education Department states borrowers will be notified before payments restart.

Should the student debt relief plan be upheld by the Supreme Court, the Education Department would immediately start processing the approximately 26 million student loan forgiveness applications that have already been submitted, and reopen the application portal for everyone else who wants to apply.

The Education Department says that most eligible federal loan borrowers would see their student loan balances reduced or paid off—depending on how much debt they have left—within six weeks (of application submission). Borrowers would receive a notification from their loan servicers once the relief had been applied to the loan accounts.

Who Would Qualify Under the Student Loan Forgiveness Plan?

Under the one-time federal student loan forgiveness program, you could qualify to have up to $20,000 of federal student loan debt discharged if you have eligible federal student loans for which you received disbursements on or before June 30, 2022, and meet certain income criteria.

Under the current plan, the following loans would be eligible for federal student loan forgiveness:

• Direct Loans

• Family Federal Education Loans (FFEL) held by the Education Department or in default at a guaranty agency

• Perkins Loans held by the Education Department

• Consolidated
  loans composed of FFEL or Perkins Loans not held by the Education
  Department as long as they were consolidated before September 29, 2022

• Defaulted loans held by the Education Department, even if commercially serviced

How Much Student Loan Debt Could Be Forgiven?

Eligible borrowers who received Pell Grants could get up to $20,000 in forgiveness, while other eligible borrowers would receive up to $10,000.If a borrower’s loan balance is less than the maximum, they could receive forgiveness up to their total balance.

If you aren’t sure whether you received a Pell Grant, log in to your Federal Student Aid (FSA) account and check the “My Aid” tab. Additionally, the Education Department will review its records for this information and ensure you get the correct amount.

It’s also important to note that if you made payments on your federal student loans between March 13, 2020 and December 31, 2022,and your current balance is below the maximum amount of forgiveness you qualify for, you would receive a refund for those payments up to the remaining amount of your eligible relief.

Even if your loan balance exceeds your eligible cancellation amount, you could request refunds of payments made during the payment moratorium period through your loan servicer. Just keep in mind that these refunds would result in an increase in your loan balance and your monthly payment going forward.

When Could the Application Portal Reopen?

With the one-time student loan debt relief program currently on hold due to court orders temporarily blocking the program, the Education Department has closed the application portal and is not accepting new applications at this time. If yours is one of the tens of millions of student loan forgiveness applications that have already been submitted, your application is being held. Everyone else is encouraged to subscribe and check the ED portal often for updates.

Assuming the Education Department reopens the application portal, the application should only take a minute or two to complete and you would be asked to provide the following information:

• Full name, including former last names you may have provided to the DOE

• Social Security number

• Date of birth

• Phone number

• Email address

Upon reviewing the requirements, signing and then submitting your application electronically, you would receive an email confirming your submission. At that point the DOE would review your application to confirm you’re eligible for debt relief.

Generally, you wouldn’t need to do anything else, however, in certain cases the agency may contact you to:

• Request documentation to verify your income;

• Verify your parents’ income if you were a dependent student between July 1, 2021 and June 30, 2022;

• Notify you that it can’t match you to its loan records based on the information you provided; and/or

• Notify you that you don’t have eligible loans.

Once your eligibility has been confirmed, you would receive an email showing your application had been approved.

How Would Loan Servicers Apply Forgiveness?

If you have eligible federal loans across multiple loan types, the Education Department would discharge your debt in the following order:

• Defaulted loans held by the Education Department

• Defaulted commercial FFEL Loans

• Non-defaulted Direct and FFEL Loans held by the Education Department

• Perkins Loans held by the Education Department

Furthermore,if you have more than one loan within the same loan program, such as multiple Direct Loans, the Education Department would prioritize loans with the highest interest rate first.

If you have two or more loans with the same rate, it would apply relief to unsubsidized loans
before subsidized loans. If the interest rate and subsidy status are the same, it would apply relief to the most recent loan first.

Finally,if the interest rate, subsidy status, and disbursement date are the same, it would prioritize the loan with the lowest combined principal and interest balance, under the current plan.

Would Monthly Payments Stay the Same?

If your student loan balance is greater than your eligible discharge amount, the Education Department would recalculate your monthly payment based on your new balance.

Other Federal Student Loan Forgiveness Initiatives

While the one-time student loan forgiveness program remains blocked, other major student loan relief initiatives for eligible borrowers with income-driven repayment (IDR) plans and those working toward Public Service Loan Forgiveness (PSFL) are continuing.

Here’s what you should know.

Income Driven Repayment (IDR) account adjustment

Borrowers on an IDR plan can receive forgiveness after they complete a 20- or 25-year repayment term, depending on the plan they chose.

The Education Department will conduct a one-time revision of qualifying payments toward forgiveness under IDR plans on Direct Loans and federally-held FFEL Loans, adding time toward forgiveness for the following:

• Months in which you had time in a repayment status, regardless of the payments made, loan type, or repayment plan;

• Twelve or more months of consecutive forbearance or 36 or more months of cumulative forbearance;

• Months spent in deferment (with the exception of in-school deferment) before 2013; and,

• Time in repayment prior to consolidation on consolidated loans.

If you’ve accumulated more than 20 or 25 years’ worth of payments with the adjustment, you can receive automatic forgiveness. This would be the case even if you’re not currently on an IDR plan, and you may receive a refund for over payment.

Account updates for those who don’t have the required number of payments for forgiveness with the adjustment could begin in summer 2023.

If you have commercially held FFEL, Perkins, Health Education Assistance Loan Program, or other non-Direct Loans, you can still take advantage of the IDR account adjustment if you
consolidate your loans by May 1, 2023.

Public Service Loan Forgiveness (PSLF) account adjustment

The Education Department will do the same account adjustment for eligible PSLF program candidates, adding time toward forgiveness for 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance.

Limited PSLF Waiver improvements

The Limited PSLF Waiver, which offered a one-time account adjustment to help PSLF-eligible borrowers increase their payment count, ended October 31, 2022. Due to a surge in submissions between July and November, a large backlog of applications are still in process. If you submitted an application, the Missouri Higher Education Loan Authority (MOHELA)—the Education Department’s contracted servicer—should process it within 90 days, though some cases may take longer.

Certain aspects of the waiver will continue in 2023. For starters, if you have non-Direct Loans
and consolidate them by May 1, 2023, you can receive credit for prior payments in a one-time account adjustment.

Also, the White House is making some aspects of the Limited PSLF Waiver permanent starting July 1, 2023. Here’s what will change with the PSLF program:

• Borrowers will get credit for all payments, including late and lump-sum payments.

• Certain periods of deferment and forbearance will count toward qualifying payments.

• Borrowers who consolidate loans will receive a weighted average of existing qualifying payments instead of needing to start over.

• There will be a single standard of 30 hours per week for full-time status.

• Adjunct and contingency faculty will receive 3.35 hours for each credit hour taught.

• Contractors can receive credit if they’re providing a service to an employer that,
  by state law, can’t be provided by a full-time employee of the
  organization.

The Bottom Line

The White House’s one-time federal student loan debt forgiveness program is currently wrapped up in legal battles that have halted applications. The issue has made its way to the Supreme Court, but it’s unclear how long the tribunal will take to make a decision. The student loan payment pause is extended until the U.S. Department of Education is permitted to implement the student loan debt relief program or the litigation is resolved.

If you believe you qualify for the one-time student loan forgiveness program, subscribe for status updates and to understand how these legal challenges and court decisions could impact you.

Other student loan debt relief initiatives are continuing.

It’s important to note that LendingClub does not offer debt consolidation for student loans debt but does offer personal loans that you can use to consolidate other types of non-student loan debt, such as for credit card balances, paying down medical bills, making home improvements, refinancing auto loans, and more.