I wanted to test the entire process to make sure it worked before writing this article, but with Labor Day coming up and the fact that we’re running out of time, I’m going to write it now. Last week, when I wrote about the angry reaction to President Biden’s student loan forgiveness plan, I outlined my particular loan situation thinking that — despite the fact that I’ve been paying on my loans for two decades — I wouldn’t get any benefit from this. But, you can learn a lot from the comments, and Agent Sculder alerted me to a fix. Thank you (and everyone that didn’t know about this and can also take advantage can thank Sculder, too).
Many years ago, I consolidated my student loans with a private company (in my case, Sallie Mae, although Navient at some point took over the loans) in order to reduce the monthly payment on my loans. I thought this was a good thing, and I understand this is the case for a lot of Gen Xers and Elder Millenials (several others in the comments section echoed this situation). If your loans are owned by private companies like Navient and Sallie Mae, you probably haven’t even been able to take advantage of the pause on loan repayment for the last two years because, like me, you were young and poor and were enticed by the offer of lower monthly payments.
However, that doesn’t mean you can’t take advantage of student loan forgiveness. What you have to do — and this is much easier than I thought it would be — is consolidate your loans again by filling out a Federal Direct Consolidation Loan Application. If you don’t have an account with the Federal Student Aid website — and I didn’t, because I didn’t have federal loans — it’s easy to create one here, although you will have to wait one-to-three days to wait for the Social Security Administration to verify your identity (I received verification on the same day). It’s all done electronically, unlike the old days where we had to do everything by snail mail and it took two months to get anything done.
Once you have an account, it will list all of your existing private loans. Your entire student loan history is available here so you don’t have to scramble around and try to find documents from a decade ago in some drawer you forgot about. There’s no credit check, no employment verification, and no co-signer needed (you will have to provide a couple of references). It takes 10-15 minutes to fill out the form, and it will even provide an estimate for how much your monthly payment will be. It also allows you to choose which payment program you’d like (standard, graduated, income-based, etc.).
That’s it. You fill it out, and you wait for your new federal loan servicer to approve it (and you can choose whatever new company you want — I went with Nelnet). I applied four days ago and received an email today saying my loan would be processed on October 20th, so the turnaround process is a little less than 2 months. Once approved — and I think it’s guaranteed — you qualify for all of these new benefits. If you’re a Pell Grant recipient — and your dashboard will tell you if you are, in case you’ve forgotten — you’ll get $20,000 deducted from your student loan balance, as long as you do all of this by December 31st, 2022. If you’re not a Pell Grant recipient, you’ll still get $10,000 wiped away.
You can also take advantage of the other benefits of the program. If your original balance was less than $12,000 and you’ve been paying for 10 years, you’re done! Your debt will be cleared. If you choose the income-sensitive repayment program, you’ll also only have to make monthly payments based on 5 percent of your discretionary income (instead of 10 percent), and if that payment doesn’t cover the interest on your loan, the government will pay that, too! In fact, if you only make the equivalent of $15 an hour, your payments will be $0 per month, and no interest will accrue. Holy shit!
Biden’s fact sheet even offered this example (which I know applies to at least one commenter):
A typical single public school teacher with an undergraduate degree (making $44,000 a year) would pay only $56 a month on their loans, compared to the $197 they pay now under the most recent income-driven repayment plan, for annual savings of nearly $1,700.
Again, not only will your monthly payment be reduced from $197 to $56, the government will pay the unpaid interest so that your loan amounts don’t actually increase while you’re paying them back. In the first 10 years out of school, that would have been huge for me.
I did all of this in less time than it took me to write this post.
Meanwhile, my wife — who works for a non-profit and has since she began working — will also be applying to the Public Loan Forgiveness Program, which will forgive your loans completely if you’ve made 120 payments. Do you work for a government organizations at any level, or with a not-for-profit organization that is tax-exempt under Section 501(c)(3) of the IRS? Then you should qualify, and if you’ve worked in one of those jobs for a decade, you can get the rest of your loans wiped out. Boom!
However, you will again need to apply fill out a Federal Direct Consolidation Loan Application. This time you have to change your loan provider to MOHELA. Once you’ve consolidated into a Federal Direct Consolation Loan, you can take advantage of the PSLF. You need to act quickly on this one, however, because after your loans are consolidated under the Direct Loan program, you’ll only have until October 31st to fill out the PSLF form and certify your employment. That’s less than two months away, so use this weekend wisely.
If this was all stupidly obvious to you, great! Congratulations, Smarty Pants! But if you have been paying under auto debit for 15 years and never paid attention to your private student loans because you assumed they wouldn’t be discharged until death, hopefully this post will help you take advantage of the new benefits. Thanks, Biden!