Biden just erased $1.2B in student loans. Yours could be next

(NerdWallet) – More than 150,000 borrowers who signed up for the newest student loan repayment plan — Saving on a Valuable Education (SAVE) — just found out President Joe Biden will forgive their remaining debt. If you weren’t one of the lucky borrowers, it’s not too late to join their ranks.

“This is the first announcement, hopefully, in a slew of announcements,” says Amy Czulada, outreach and advocacy manager of the Student Borrower Protection Center, a nonprofit student loan borrower advocacy organization, of the forgiveness email affected borrowers received.

The Education Department has not shared a timeline for future SAVE forgiveness announcements but said it will discharge eligible loans on a “rolling basis” going forward.

You must enroll in SAVE and meet two key criteria to qualify for debt forgiveness now:

  • Borrowed $12,000 or less in federal student loans. 
  • Spent at least 10 years in repayment, including the pandemic pause and other time counted under the IDR account adjustment

If you meet these requirements, Czulada says, “Please enroll — this could really change your life in a matter of minutes.” Private student loans are not eligible for the SAVE program or federal student loan forgiveness.

Each additional $1,000 in federal student loans you borrowed above $12,000 adds an extra year to your SAVE repayment, up to 20 or 25 years, depending on loan type. Your SAVE forgiveness timeline hinges on the original sum of all federal student loans you borrowed, not the amount you currently owe or the amount you owe on a single loan.

For example, if you took out between $12,001 and $13,000, you must spend 11 years in repayment instead of 10 before SAVE will forgive your remaining balance.

The SAVE plan offers other benefits, like reduced or $0 monthly payments, based on the borrower’s income. As of Feb. 21, more than half of the 7.5 million borrowers enrolled in SAVE have $0 payments. And starting in July, those who do owe money each month may see their already-reduced bills slashed in half.

You can sign up for SAVE at any time, but the sooner you do so, the sooner your monthly payments — even the $0 payments — will start counting toward SAVE’s forgiveness threshold.

Watch for upcoming White House email

This week, the White House plans to start emailing borrowers who — if they switch to the SAVE plan — could qualify for loan forgiveness now.

If you began repayment in early 2014, and you originally borrowed $12,000 or less, you may get an email encouraging you to enroll in SAVE.

Keep an eye on your inbox and be wary of student loan scams. Official Education Department messages will only come from one of three senders: noreply@studentaid.gov, noreply@debtrelief.studentaid.gov or ed.gov@public.govdelivery.com.

Consolidate your FFELP, Perkins or HEAL loans

Most borrowers can directly enroll in SAVE and automatically get credit toward forgiveness for past months spent in repayment, under the IDR account adjustment. However, a small group of borrowers with the following discontinued loan types must consolidate their loans to qualify for both the IDR account adjustment and the SAVE plan:

  • Commercially held FFELP student loans.
  • Perkins student loans. 
  • Health Education Assistance Loan (HEAL).   

You must begin the consolidation process by April 30 to get credit for past repayment periods under the IDR account adjustment. If you consolidate after April 30 and sign up for SAVE, you’ll start with zero months toward forgiveness — potentially adding years or decades to your repayment timeline.

“If they had been paying for 10 years and consolidate on May 1, there’s a chance that all of that will basically be erased and they’d have to start all over again, so we’re encouraging as many folks as possible to apply for consolidation if they need to by April 30,” says Sabrina Calazans, managing director of the Student Debt Crisis Center, a nonprofit group that aims to advance student debt relief.

To verify which types of loans you have, log into your StudentAid.gov account, navigate your dashboard and select “My Aid” from the dropdown menu. Under the “Loan Breakdown” section, you can click “View Loans” and “View Loan Details.”

Sign up for Fresh Start if you have defaulted student loans

Borrowers with defaulted federal student loans must sign up for the Fresh Start program to get their loans into good standing before they can enroll in SAVE. Remember, SAVE can also give you $0 monthly payments if your annual income is at or below $32,800 as an individual or $67,500 for a four-person household.

If you sign up for Fresh Start before October, you’ll receive credit toward SAVE forgiveness for any months spent in default from March 2020 through the month you exit default, plus any other months when your loans were in good standing.

Enroll in SAVE on StudentAid.gov

There’s no income limit to qualify for SAVE. Most federal student loans are automatically eligible for the plan; parent PLUS loans are ineligible.

The easiest way to sign up for SAVE is on StudentAid.gov, Calazans says. Alternatively, you can call your servicer or submit a paper IDR application.

Before choosing SAVE, use the Education Department’s loan simulator tool to estimate your monthly payments, payoff timelines and potential forgiveness under different plans.

SAVE isn’t a good fit for everyone. “The higher your income is, the less likely it is that SAVE makes sense,” says Kristen Ahlenius, director of education and advice at Your Money Line, a workplace financial wellness company that works with student loan borrowers. A high income could leave you owing more on SAVE than you would on the regular 10-year repayment plan.

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