If you were hoping for student loan cancellation due to COVID-19, unfortunately, the tuition forgiveness may not be as generous as originally planned.
The CARES Act, passed in March 2020, specifically addressed student loan payments but not forgiveness. It allowed federal student loan payments, including interest, to be frozen through October 2020. The new HEROES Act will address student loan forgiveness.
Student loan forgiveness reduced in new stimulus proposal
The HEROES Act is the $3 trillion fourth round of stimulus legislation proposed to provide relief to Americans during the COVID-19 economy. The act also contains more language around student loan forgiveness, where the CARES Act focused on a pause in payments. The HEROES Act has passed through the House and is now working its way through the Senate.
Originally, the bill included $10,000 of student loan forgiveness for both federal and private student loans and without qualification restrictions. As the bill has been hotly debated, new amendments have been introduced and new restrictions on who qualifies have been put into place. The changes to the amount and restrictions surrounding forgiveness were put in place to provide relief targeted toward distressed borrowers only.
In addition to the student loan cancellation, other proposals to relieve the burden of student loan payments have been included in the HEROES Act. These additions include extending the payment relief and the 0% interest on federal loans from October 2020 for another year. Additionally, there are changes in the Public Service Loan Forgiveness program (PSLF) to make it easier for borrowers to qualify for forgiveness through the federal-sanctioned program.
But before you get ready to erase $10,000 in student loan debt from your life, it’s important to understand who and what qualifies for this tuition forgiveness and how Congress’ student loan forgiveness differs from your own definition.
Student loan forgiveness: What does it include? Do I qualify?
With the new amendments introduced to the HEROES Act, there are now restrictions placed on who can qualify for the $10,000 in student loan forgiveness, plus the extension in payment relief options. The qualifications for federal loans are very similar to those of private loans. However, private loans have additional language regarding those who are considered “economically distressed.” Here’s what the current proposal looks like:
Federal student loans: Student loan forgiveness
To qualify for $10,000 in federal student loan forgiveness, you would have to fall under one of the following categories:
- Default. If you haven’t been able to make a federal student loan payment in 270 days or longer.
- Deferment. If you are in an official deferment plan with your federal loans and have paused your payments due to economic hardships or cancer treatments.
- Delinquent payment. You are considered delinquent on federal student loans if you haven’t made a payment in at least 90 days.
- Forbearance. If you are officially enrolled in a forbearance plan.
- $0 monthly payments. Income-based repayment (IBR) and income-contingent (ICR) plans adjust your federal student loan monthly payments based on your current level of income. If your income is low enough, you could have a $0 minimum monthly payment. This would automatically qualify you for the $10,000 in federal student loan forgiveness.
Private student loans: Student loan forgiveness
To qualify for $10,000 in private student loan forgiveness, you would need to meet one of the following criteria:
- Default. Verify with your private lender, but being in default is typically when you haven’t made a payment in 270 days or more.
- Delinquent payment. If you are at least 90 days late on a private student loan payment.
- Forbearance. If you’ve paused payments and enrolled in a forbearance plan with the private lender.
- Deferment. If you’re enrolled in a deferment plan with the private lender.
- Economically distressed. An economically distressed borrower for a private student loan holder is a little harder to define. The HEROES Act considers a borrower economically distressed if the borrower would qualify for a $0 monthly payment under the IBR and ICR plans with federal loans.
[Related: Best Student Loans in 2020]
Here’s a list of a few student loan repayment options
Whether the HEROES Act becomes law remains to be seen. However, you do have other options you can explore to pay off student loan debt or relieve pressure from your monthly payments.
- Refinancing. Refinancing student loans can help you lower your monthly payment and reduce the overall amount you pay in interest during the life of your loan.
- Consolidation. Although it’s often confused with refinancing, consolidation of your loans is a different concept. It involves combining at least two student loan payments into one monthly payment. It doesn’t necessarily change your interest rate, although the weighted average of your current interest rates is used to determine the new rate. You can look for programs to consolidate either federal loans, private loans or a combination of both.
- Enroll in an income-driven repayment plan. Federal loans may be eligible for income-driven repayment plans. This includes the IBR and ICR mentioned earlier. You have an opportunity to have your monthly payment reduced based on your current income. This could help you manage your payments while you work on increasing your income.
- Pursuit of PSLF. You don’t have to wait for the HEROES Act to pursue an opportunity for student loan forgiveness. The current federal PSLF program allows qualifying professions to have their federal loans forgiven. PSLF is commonly used by teachers and physicians who have qualifying federal loans. After making 120 payments and working for a federal, local or state government or a non-profit organization for 10 years, you can have your loans forgiven.
Too long, didn’t read?
The HEROES Act currently proposed would provide up to $10,000 in student loan forgiveness for those who meet certain qualifications. The original proposal did not have such restrictions to qualify, but you now have to be considered a distressed borrower. Although any student loan forgiveness would lift a great burden, it’s unlikely the HEROES Act will pass in its current form. Instead, a better approach to your student loans would be to look into other repayment options to help ease a little of the pain.
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