The Department of Education launched the Student Loan Forgiveness Application site on October 17, 2022.  This website follows the prior launch of a beta site that received significant traffic and was not formally announced.  The President also announced that approximately 8 million borrowers would qualify for an automatic forgiveness submission.  The Department of Education will identify these applicants through existing data.

Borrowers, who do not want to receive the one-time forgiveness for state tax reasons, can opt-out.  They will need to do this by November 14. 2022 by contacting their loan servicer.

The loan forgiveness processing will not be finalized until 11/15/2022 at the earliest.  The Department of Education will notify the borrower’s loan servicer with the approved amount.  The loan servicer will contact the borrower, and the adjustment will be applied to the account at some point.  The application is part of the White House release of the Student Loan Forgiveness Application preview on October 11, 2022.

Borrowers who submit their information during the beta version will not be required to resubmit.  With the information required, be very careful about the internet connection you use when completing the form.  It requires the most basic identifying information that a person has, which has some identity theft risk.

This application was part of the President’s Student Debt Relief Plan, announced in late August.  The program’s goal is to help student loan borrowers reduce their debt by $10,000 to $20,000, depending on each borrower’s situation.

Automatic Registration

As stated above, some borrowers will be enrolled automatically as part of the one-time loan forgiveness program.  If you have applied, this will not be a problem and it will be ignored.  The people who will most likely be enrolled automatically are those for whom the Department of Education has your debt and income information.  These will be:

• Borrowers that enrolled in an Income-Driven Repayment Method with income recertification using the 2020 or 2021 tax data.
• Borrowers who have completed FAFSA for 2021 and maybe some for 2022. Remember that the FAFSA process uses the timing process of Prior Prior.  The 2021 FAFSA used 2020 tax data, and the 2022 FAFSA uses 2021 tax data.

If you are unsure, you should submit the application.

Debt Relief Application and Process

The debt forgiveness application form requests a borrower’s full name, Social Security number, date of birth, and other contact information. It includes an income-related question for 2020 or 2021 to verify the applicant’s eligibility. Additional information may be required if the education department can not properly verify the information.

Once the Department of Ed approves the borrower’s application, it will notify the borrower’s loan servicers to process debt relief based on what they qualify for under the program guidelines. Those loan servicers will inform the borrowers that their forgiveness has been approved and when it will be applied to their loan balance. Additionally, they will provide details about outstanding loan balances and changes to their monthly payment updates.

Processing it is expected to take 4 to 6 weeks based on prior announcements. The Department of Ed recommends that people apply early in preparation for student loan restart on 1/1/2023. The application will be available on mobile and Desktop platforms at the full launch. It will be available in both English and Spanish.

There are severe penalties for fraud or misuse, which are stated as part of the application.

Need for Additional Information

If the data does not match the Department of Education information, the borrower will need to upload additional information. It is unclear which information will be more important, the Department of Education or the IRS information. According to the site, this will be done via email and by your loan servicer.

Even though the process is not using the FSA ID process, we still recommend that borrowers update their contact information on the StudentAid.gov website.  We are recommending that the borrower’s contact information on the StudentAid.gov and loan servicer match their 1040 data exactly. This should make verification easier.

Importance for Early Application

The announcement re-emphasizes that borrowers should apply early. Due to the recent lawsuits, there is some concern that some borrowers could get adjustments applied before the court system halts or pauses the forgiveness program.

The primary reason is to get the forgiveness applied before the restart in January.

The forgiveness application may put additional pressure on the Department of Education systems since it is also prime FAFSA submission time. Due to the timing of both FAFSA and this new forgiveness program, you may need to be patient for system response and the ability to call for help. The administration has stated that this is not a concern based on the possible flood of people applying for forgiveness.

Loan Forgiveness Sequence

Many borrowers are asking how the loan forgiveness will be applied to their student loans.  Here is how the loan forgiveness will be applied to a borrower’s loans.

• Defaulted ED-held loans
• Defaulted commercial FFEL Program loans
• Non-defaulted Direct Loans and FFEL Program loans held by ED
• Perkins Loans held by ED

If the borrower has multiple loans in a program type (e.g., multiple Direct Loans), it will be applied in the following order:

• Apply relief to loans with the highest statutory interest rate.
• If interest rates are the same, apply to unsubsidized loans before subsidized loans.
• If the interest rate and subsidy status are the same, apply to the most recent loan.
• If the interest rate, subsidy status, and disbursement date are the same, apply to the loan with the lowest combined principal and interest balance.

Possible Loan Forgiveness Delays

The Student Debt Relief plan is beginning to get some legal challenges that could delay the processing of the forgiveness or even make the program unconstitutional, according to some experts. Those affected have FFEL and Perkins loans that are held by private lenders and not the federal government. The Department of Education has already reacted to some of the legal issues. They made adjustments to the program on the Student Debt Relief FAQ page.

With these possible delays, borrowers should continue to plan for their loan repayments to restart on 1/1/2023. According to the Student Relief Forgiveness plan, loans would be re-amortized after the forgiveness is authorized, which would change the payment amount due. At this time, I would confirm your current payment amount and plan on paying that amount. Loan servicers should start reaching out shortly also with more information and the application of forgiven amounts.

Security Concerns

The simplicity of this process is a little concerning based on the other security precautions that the Department of Education has in their other systems. For example, the FAFSA’s Data Retrieval Tool links a person’s IRS data to the FAFSA. In that process, the results do not show the numbers imported to the FAFSA for security reasons.

We recommend that you are on a secure network when submitting this simple application. The form is simple but has the most critical Personal Identifiable Information required for your identity to be stolen.

Advisor Student Loan and Forgiveness Training

With these recent changes, getting the proper advice will be difficult for many borrowers. Some companies are adding student loan assistance benefits that will help borrowers. For those borrowers counting on the loan services, wait times, and their legal advice limits may become a problem. Due to the increased use and complexity of Income-Driven Repayment methods, the loan servicer and college financial aid offices cannot legally provide the proper advice. Both tax and personal financial advice are now needed to generate the correct answers.

At PayForED, we believe that financial advisors and tax preparers have an excellent opportunity to help millions of borrowers make better repayment and forgiveness decision.

Our new Student Loan Repayment Advisor designation provides the training you will need to help borrowers and differentiate yourself from other financial professionals. Here is a link to our CFP CE Approved and FINRA listed Designation.