How do you know if you qualify for the student loan forgiveness

• Biden announced up to $20,000 in student-loan forgiveness in August.
• The majority of borrowers will have to apply for relief, while eight million should automatically qualify.
• Here's how the Education Department will determine that automatic relief.

One-time student-loan forgiveness could be hitting millions of borrowers accounts by the end of the year — and some could be eligible to get that relief automatically.

At the end of August, President Joe Biden announced up to $20,000 in student-loan forgiveness for Pell Grant recipients making under $125,000 a year, and up to $10,000 in relief for other federal borrowers under the same income cap.

While an application form is set to go live in early October that borrowers can fill out to apply for relief, the Education Department estimated that about 8 million federal borrowers should receive the loan forgiveness automatically without any additional action on their part.

"There is an entire generation now saddled with unsustainable student loan debt in exchange for a college degree," Biden wrote on Twitter. "We're making incredible progress bringing relief to those that need it and fixing the student loan system so it works for working people."

According to an FAQ posted on the studentaid.gov website, there are two ways the department will determine if you are automatically eligible to receive relief:

1. The Free Application for Federal Student Aid (FAFSA)
2. Income-driven repayment applications.

Students or parents can submit a FAFSA form during college to determine the amount of federal student aid they can receive to help cover tuition costs. Borrowers can apply and enroll in income-driven repayment plans to provide them with affordable monthly student-loan payment based on income post-graduation.

If parents or borrowers submitted their income data for tax years 2021 or 2020 for either of those programs, the department will use that information to determine whether borrowers meet the income requirements — individually making under $125,000 a year — to apply for student-loan forgiveness. The department noted that if it has borrower data for both of those years, it will choose the year with the lower income.

All borrowers determined to receive relief automatically will receive an email and a text message from the department, and the department will provide that information to the student-loan companies to process that relief.

A new income-driven repayment plan is also expected to be rolled out that's intended to make monthly payments more affordable while preventing interest from adding onto a borrower's principal balance. That plan will be a part of the department's regulatory rulemaking process with implementation planned for July of next year, alongside reforms to other targeted loan forgiveness programs like Public Service Loan Forgiveness and discharged for borrowers with total and permanent disabilities. 

Now that millions of federal student loan borrowers have received the long-anticipated news that a portion of their debt will be forgiven, they've entered a new phase: waiting to see it reflected in their loan balances.

Last week, President Joe Biden announced his plan to cancel up to $10,000 in federal student debt per borrower and up to $20,000 for Pell Grant recipients. Individuals earning less than $125,000 per year and married couples or heads of households earning less than $250,000 per year are eligible for the debt cancellation.

And while it may sound like a lengthy process to see play out with lenders, Meagan Landress, certified student loan professional and consultant at Student Loan Planner, tells Select that borrowers could expect to have the forgiveness reflected in their accounts before the end of the year.

Higher education expert Mark Kantrowitz agrees, adding that it will probably take one or two months for the U.S. Department of Education and student loan servicers to implement loan forgiveness.

Below is everything we know from what information has been provided to the public so far on when borrowers can expect the relief.

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When federal student loan borrowers can expect Biden's forgiveness

In order to receive forgiveness, most federal student loan borrowers whose income qualifies will need to submit an application form detailing their income.

According to Kantrowitz, this can add time to the process, and we don't yet know how complex the form is — it's said to be available by early October. If loan forgiveness ends up being challenged in court, that might mean a delay, too.

The Federal Student Aid website says, however, that relief can be expected within four to six weeks of completing the application; the website also advises to apply before Nov. 15, 2022, in order to see your loans forgiven by the end of this year.

Some qualified borrowers, however, may see their forgiveness sooner. Those with income-driven repayment plans should receive their student loan forgiveness automatically since the Department of Education already has their income data, Kantrowitz explains. The Department of Education estimates 8 million borrowers to receive relief automatically since their income information is already on file.

In the meantime, federal student loan borrowers can sign up through the Department of Education subscription page to be notified when the forgiveness process officially opens and the application form goes live. The deadline to apply, which is noted on the Federal Student Aid website, is Dec. 31, 2023.

If you still paid your loans after the payment pause was enacted on March 13, 2020, you may qualify for a refund. There are already reports of borrowers calling their lenders, asking for a refund and receiving payments within days. While that action will bring a borrowers student loan balance back up, they will then likely get their balance canceled after applying for forgiveness.

If you qualify for forgiveness but still have some student debt left

Many borrowers are likely wondering how to proceed with their loan repayment plan if they still have some student debt left over after the forgiveness is applied to their balance.

Firstly, both Landress and Kantrowitz recommend taking advantage of the continued payment and interest pause on federal student loans. As part of President Biden's announced plan, he included extending again the Covid-induced federal student loan repayment moratorium, this time through Dec. 2022.

Borrowers who don't need to reallocate these funds to boost their savings or pay off higher-interest debt (such as credit cards) can take advantage by still making their student loan payments through the end of the year anyways. Not only does this get student loan borrowers back in the habit of paying off their debt monthly, but with interest on hold, it means their money is going directly toward the principal.

Come 2023, when payments and interest on federal student loans are expected to pick back up (and after borrowers have ideally received their forgiveness), those who are paying a high interest rate may want to sign up for autopay to see what that does. "Not only are they less likely to be late with a payment, but they will get a 0.25 percentage point interest rate reduction as an incentive," Kantrowitz says.

Another option when dealing with a high interest rate is to consider refinancing depending on what the marketplace is offering. Doing this allows borrowers to consolidate all their loan payments into one, ideally with a lower interest rate, and to choose a new loan term.

Keep in mind, however, that refinancing federal loans with a private lender strips borrowers of any federal loan protections, such as income-driven repayment plans, future student loan forgiveness and deferment or forbearance options — which is why borrowers should wait to receive Biden's loan forgiveness first. Even though the Department of Education will continue processing applications for forgiveness after the payment pause expires at the end of this year, we recommend sending in your application as soon as it becomes available so that you can get your forgiveness ASAP.

If you choose refinancing

When shopping around, borrowers should check out some of Select's top student loan refinancing lenders. One of the best, SoFi, offers its own protections, which may be suitable enough for someone to make the switch, including everything from unemployment protection to Covid forbearance and loan deferment. The lender will also honor any pre-existing grace period borrowers have on the loans they refinance.

And borrowers who want to refinance, whether it's a federal student loan or a private student loan, can get better approval odds with lenders such as Earnest and Citizens Bank. The former allows those with fair credit scores to apply, while the latter allows for applying with a co-signer.

Whichever repayment route you choose, know that there are products out there that help ensure you're always paying off your student debt (even when you don't want to think about it). The student loan repayment app, Chipper, for example, uses your everyday spare change to consistently chip away at your student loan debt. Read Select's full review of Chipper to learn more.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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