Annie Nova -
CNBC
As part of President Joe Biden's historic student loan forgiveness plan, up to 8 million people will be able to get automatic debt relief, according to the White House.
Most people with federal student debt will be eligible for some forgiveness: up to $10,000 if they didn't receive a Pell grant, which is a type of aid available to low-income college students, and up to $20,000 if they did.
Help is limited to those earning less than $125,000 a year, or married couples or heads of households earning less than $250,000.
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Those who will get automatic loan discharge are those for whom the US Department of Education already has income data and can therefore verify their eligibility without waiting for an application.
This is what you should know.
Who can benefit from the automatic cancellation of loans?
To automatically verify certain borrowers' income data for tax years 2021 or 2020 (whichever is less), the Department of Education plans to use data obtained through the Free Application for Federal Student Aid (FAFSA). acronym in English) as well as through income-based reimbursement plans.
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The FAFSA is how families apply for college financial aid each year, while income-based repayment plans allow borrowers to repay their loans more affordably by limiting their monthly bills to a portion of their income .
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Both require proof of income.
However, since the government only cares about revenue from 2020 or 2021, the timing of it will matter.
If you recertified your income on an income-based repayment plan in 2021 or 2022, you may qualify for automatic cancellation, according to higher education expert Mark Kantrowitz.
For the FAFSA, meanwhile, you'll need to have submitted it for the 2022-2023 academic year.
Should I apply for help if the Government has my income data?
Yes. Experts say that even if you think the government already has your income information, you still need to go through the formal application process when the application goes live, which the Department of Education says will happen in "early october".
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"With any new government program, there's a risk of failure, so it's best to apply just in case," Kantrowitz suggested.
How quickly will forgiveness occur?
Borrowers could see the loan payoff reflected in their accounts within six weeks, according to Kantrowitz.
“They should also get a notification from the loan servicer when they receive forgiveness showing how it was applied to their loans,” Kantrowitz explained.
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Relief will be limited to borrowers earning less than $125,000 a year, or married couples or heads of households earning less than $250,000.
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Check your recent tax returns to confirm your income was below those thresholds in 2020 or 2021 (either will do).
The Department of Education will consider a person's so-called adjusted gross income, or AGI, which may be different from their gross wages.
To confirm your AGI for 2020 and 2021, look for line 11 on the first page of your tax return, known as Form 1040.
What's next after cancellation?
A lower monthly payment on student loans "is an opportunity to reexamine fundamentals like cash flow," said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.
“Money that used to be used each month to pay down debt can now be used to increase savings or investment,” he added.