Fast Facts about how student debt relief will be applied for borrowers with multiple loans

If you have multiple student loans, the Department of Education determines how relief is applied. Here are the loans that will be forgiven first.
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Student Loan Forgiveness with inscription on the sheet.

The release of an online application for student loan forgiveness is slated for early October, but many people still have questions about how the Biden administration’s debt relief plan will work.

People are eligible for up to $10,000 in student loan forgiveness under the plan if their income was below $125,000 for individuals or $250,000 for couples in 2021 or 2020. Those who received a Pell Grant in college and meet the same income thresholds can receive up to $20,000 in relief.

But how will the relief be applied for borrowers who have multiple loans? VERIFY reader Ellen S. texted the team to ask in what order loans will be forgiven, and whether this is based on factors such as the age of the loan or interest rates.

Here’s what we know about how student debt relief will be applied to your loans.

More from VERIFY: Fast Facts about student loan forgiveness

THE SOURCES

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WHAT WE FOUND

If you have loans that are in default

For borrowers with multiple loans, the Department of Education will first forgive those that are in default. 

If your loan payments continue to be past due, or delinquent, the loan could go into default. The point when a loan is considered to be in default varies by loan type. Some federal loans are considered to be in default if someone doesn’t make scheduled loan payments for at least 280 days. 

Defaulted loans that are held by the Department of Education will be forgiven first, followed by commercially held Federal Family Education (FFEL) Program loans

If you don’t have any loans in default

For those who don’t have any loans that have gone into default, the Department of Education will apply student loan forgiveness in the following order:

You can find what type of loan you have by logging in to your Federal Student Aid (FSA) account and selecting “My Aid” in the dropdown menu under your name. In the “Loan Breakdown” section, you’ll see a list of each loan you received. 

If you expand “View Loans” and select the “View Loan Details” arrow next to the loan, you’ll see the more detailed names for your loans.

The name of your servicer will start with “Dept. of Ed” or “Default Management Collection System” if your FFEL or Perkins loans are held by the Department of Education. Servicer names are also visible in the “My Aid” section.

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If you have multiple loans of the same type

The Department of Education has also outlined the order by which it will apply student loan forgiveness for people who have more than one loan in the same program type, such as the Direct Loan Program. 

If you have multiple loans of the same type, the department will first apply relief to loans with the highest statutory interest rate. “Statutory” simply refers to the interest rate being set by federal law, Jessica Thompson, vice president at the Institute for College Access and Success, said. 

Again, your interest rate can be found by logging into your FSA account. 

If your interest rates are the same

If you have multiple loans with the same interest rates, relief will first be applied to unsubsidized loans before subsidized loans

Direct unsubsidized loans are available to undergraduate and graduate students, and there is no requirement to display financial need. Borrowers must pay the interest on unsubsidized loans.

Subsidized loans, on the other hand, are offered to undergraduate students with financial need. The Department of Education pays interest on these loans while a student is in school at least half-time, for the first six months after a person leaves school, and during a period where loan payments are postponed called deferment. 

Most borrowers who have subsidized loans also have unsubsidized loans, Thompson told VERIFY. 

If your interest rate and subsidized or unsubsidized status are the same

If you have multiple loans with the same interest rate, and all of them are either subsidized or unsubsidized, the Department of Education will apply forgiveness to the most recent loan

If your interest rate, subsidy status and age of the loan are the same 

If all of the above factors are the same, student loan forgiveness will first be applied to the loan with the lowest combined principal and interest balance

The principal refers to the amount you took out for a student loan. 

What if your first loan forgiven is less than $10,000 or $20,000?

If the first loan that the Department of Education will forgive is $5,000, for example, and you’re eligible for $10,000 in relief, relief will be applied to the next qualifying loan that you have. 

“Forgiveness will be applied until an eligible person’s $10,000 or $20,000 in student debt is forgiven, in the order of application outlined by the department,” Thompson confirmed in an email. 

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