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Student Loan Relief: How to know if you are eligible and how to apply.

Since payments on federal loans were paused at the beginning of the COVID-19 pandemic, you may have mentally put your student loans on the back burner. It’s a good time to focus on your student loans again, now that the government has announced the Student Debt Relief Plan. The plan indicates the pause on federal loan payments is ending, but the good news is individuals may be eligible for up to $10,000 or $20,000 in loan forgiveness. You may be wondering what this means for you — and what steps you may need to take. Here are some of the key things to know and to answer additional questions you may be asking.

Student Debt Relief Key Points

●  Student loan debt relief applies to federal loans specifically, not private loans.
●  Student loan payments on federal loans will continue to be paused until December 31, 2022. Plan to start making student loan payments again on January 1, 2023.
●  Eligibility for Student Loan Relief:
●  If you’re single, you must make less than $125,000 per year to qualify for student loan relief.
●  If you’re married or filing as head of your household, you and your partner must make less than $250,000 per year total to qualify.
●  If you meet the income criteria, up to $20,000 of your federal student loans could be forgiven if you received a Pell Grant. If you did not receive a Pell Grant, up to $10,000 of your federal student loans may be forgiven.
●  What to do:
●  Make sure you know who your loan servicer is and how to log into your account. If you don’t know, visit the Department of Education’s help page to learn how to identify your loan servicer.
●  Apply for relief when the Department of Education publishes the application in October 2022. You can sign up for alerts to know when the application is available.
●  Submit your application by November 15, 2022, to receive loan relief before you start making payments again at the start of next year.
●  Some individuals may receive relief automatically if the Department of Education has their income information. If you’re not sure whether this applies to you, it doesn’t hurt to apply if you think you’re eligible.
●  Keep an eye on your account with your loan servicer and document any changes, such as a decrease in your balance.
● If you work for a nonprofit or a federal, state, tribal or local government, it is urgent that you apply for potential public service loan forgiveness by October 31, 2022. Until that date, there are temporary changes in effect that make it easier to qualify for loan forgiveness or credit toward loan forgiveness.

What are federal loans?

Federal loans are borrowed from the government. To qualify for federal loans, students fill out the Free Application for Federal Student Aid (FAFSA) and receive a financial aid letter detailing what federal loans they may receive. Private loans are provided by banks and credit unions. You can apply for private loans directly with a financial institution. Learn more about different types of financial aid. Private loans are not included in the Student Debt Relief Plan.

What if I paid off my loans while payments were paused?

If you have made payments since March 2020 and think you may be eligible for student loan relief, you might want to look into a possible refund. According to the Federal Student Aid office, you can contact your loan servicer to request a refund of payments made since the pause was announced. Learn more about how to do so on their website .

Does this apply to graduate and undergraduate loans?

Yes! As long as your loans are federal, they should qualify for loan relief whether they are for a graduate or undergraduate program (as long as you meet the other criteria).

Why is it “up to” a certain amount?

If you are eligible, the amount of relief you’ll receive will depend on how much you still owe. For instance, if you owe $5,000 in student loans, you will receive $5,000 in loan relief rather than the full $10,000.

How long will it take to receive loan relief?

According to the Federal Student Aid office, individuals should receive their loan relief within four to six weeks.

What if I’m currently a student?

You may be eligible as well. However, if your parents list you as a dependent on their taxes, their income will be used to determine whether you qualify for student loan debt relief.

What income will they base eligibility on?

Your adjusted gross income from 2020 or 2021 will be used to determine if you receive student loan relief.

Can I consolidate my FFEL loans to a Federal Direct Loan to get loan forgiveness?

At this point, the answer appears to be “no.” Borrowers can consolidate FFEL’s to Direct Loans, if they already have at least one Direct loan, but these balances won’t be eligible for loan forgiveness.

What if I don’t qualify?

The Student Debt Relief Plan also includes proposed changes to repayment plans and public service loan forgiveness. These may help lower your monthly payment amount once implemented, among other benefits.

What should I consider in terms of financial planning?

Whether your debt is reduced or eliminated, your expenses are likely to go down, freeing up some cash flow. For instance, if student loan relief could reduce what you owe, your remaining balance would be re-amortized, and your monthly payment amount would be lower. Think about how you might redirect that cash flow to other goals, like establishing or growing an emergency fund, paying off other debt or saving for a big purchase. Learn more about setting up a savings plan.

How will this affect my taxes?

Sometimes, when you receive a large financial award, you may be taxed. In this case, loan forgiveness will not be considered taxable income on your federal taxes. However, some states, including Arkansas and Wisconsin, may tax loan relief, according to the Tax Foundation. Commerce Bank does not provide tax advice. Please consult your tax professional for guidance.

What about my credit score?

If your loan balance goes down, it will decrease the amount of debt in your name and may help your credit score. It is a good idea to review your credit report after receiving loan relief and confirm your loan servicer is reporting your debt (or lack thereof) correctly.

We can help you navigate student loan decisions.

As the Student Debt Relief Plan rolls out, there may be more updates ahead to student loans, repayment plans and the public service loan forgiveness plan. At Commerce, we’re here to help you navigate financial complexity, and that includes managing your student loans as part of your overall financial goals.

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