Federal student loan borrowers have been anxiously waiting for debt relief since President Joe Biden announced a $10,000 forgiveness plan in late August.
But after a month of preparation, applications are set to open in early October.
“Look, this is unprecedented. Just like there was no playbook for reopening schools, there was no playbook sitting anywhere on how to [cancel student loans]. But we’re going to do it, and we’re going to do it better than people expect,” U.S. Education Secretary Miguel Cardona told NPR last week.
In Michigan, more than 1.3 million people are eligible for at least $10,000 in student debt relief including 849,300 Pell Grant recipients who qualify for up to $20,000, according to recent estimates from the White House.
Here’s a state-by-state look at how many people could get debt forgiveness:
(Can’t see the map? Click here.)
The bulk of Michigan’s 1.4 million student borrowers, holding a cumulative $51.3 billion in debt, could see some relief.
Roughly 30.3% of all Michigan borrowers have $10,000 or less in student debt, meaning 424,700 people could have their entire debt load erased if they meet the income requirements.
Here’s how much student loan debt Michigan residents have:
(Can’t see the chart? Click here.)
“Nearly 700,000 Michiganders will have their debt cut in half or eliminated entirely, lifting a huge burden off their backs. People can use these savings to buy a home, start a business, get married, or start a family,” Gov. Gretchen Whitmer said in a statement last month.
Here’s what Michigan borrowers should know as the student debt forgiveness program rolls out:
Who is eligible?
Federal student loan borrowers earning less than $125,000 individually or $250,000 as married couples in 2021 or 2020 are eligible for debt forgiveness.
If people meet the income requirements and earned a Pell Grant (of any size, at any time), they qualify for up to $20,000 in debt relief. People can check to see if they have a Pell Grant by visiting studentaid.gov.
When can people apply?
Online applications will open in early October, according to the U.S. Department of Education.
Eligible borrowers need to apply by Dec. 31, 2023.
Roughly 8 million Americans will get automatic debt relief. They will receive an email and text message from the education department.
When will debt be forgiven?
People can expect to see debt relief within six to eight weeks after submitting their applications.
“We want to make sure that it’s a simple process, an easy process, where those who are eligible get the loan relief that they are entitled to. So, early October, and we expect the process to be a smooth process, a simple process, a quick process,” Cardona said.
Loan forgiveness won’t be taxed in Michigan.
Which loans qualify?
Only federal student loans borrowed before June 30, 2022 are eligible including:
- William D. Ford Federal Direct Loan (Direct Loan) Program loans
- Subsidized loans
- Unsubsidized loans
- Parent PLUS loans
- Graduate PLUS loans
- Federal Family Education Loan (FFEL) Program loans held by the education department or in default at a guaranty agency
- Federal Perkins Loan Program loans held by the education department
- Defaulted loans (includes federally-held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, parent PLUS, and graduate PLUS; and Perkins loans held by ED)
- Consolidation loans
What about people who made payments during the pandemic. Can they get a refund?
Yes.
People who voluntarily paid their loans during the pandemic payment pause can get a refund when they apply and receive debt relief.
Refunds will be automatically issued to people whose payments brought their balance under the relief amount but did not pay their entire loan.
In other words, an eligible borrower with an $11,000 balance who paid $2,000 during the pandemic brought their debt down to $9,000. They’ll get $9,000 erased and a $1,000 refund.
What should be done now?
While waiting, people should make sure contact information is up to date at studentaid.gov, and with service providers, such as Nelnet, Mohela or Navient. Loan servicers will alert borrowers when debt relief has been applied to their balances.
The U.S. Department of Education will send updates by email and text message when applications open.
Also, don’t forget student loan payments and interest rates start back up again on Jan. 1, 2023.
More information about the student debt forgiveness plan is available here.
More on MLive:
6 things to know about the student debt forgiveness plan
Taking out student loans this year? It’s going to cost more.
5 facts about how much student loan debt Michiganders have