Updated on November 10, 2022
By Katie Krumpter, NYLAG Senior Financial Counselor
On August 24, 2022, the Biden administration announced a plan for broad student loan cancellation. The administration expects that 20 million people will have their federal student loans fully cancelled. They released the application for forgiveness on Monday, October 17, which you can find here.
You may be wondering if you qualify and how the plan will be implemented. Here are some answers.
Am I Eligible?
Here is the eligibility criteria for loan forgiveness under the plan:
- If your tax filing status is single, your income must be below $125,000 to qualify, or $250,000 if your filing status is married, filing jointly, or head of household. If you are a “dependent” according to FAFSA, then the eligibility will be based on your parents’ income.
- If you received Pell grants while in college, you are eligible for up to $20,000 in debt forgiveness. If you did not, you are eligible for up to $10,000.
- Without Pell grants: If you had no Pell grants while in college and have an outstanding loan balance of $7,265, you will receive $7,265 in forgiveness.
- With Pell grants: If your balance is $27,250 and you had Pell grants, you would receive $20,000 in forgiveness, with a remaining balance of $7,250
- Under this plan, forgiveness only applies to federal loans – they an be Direct, Parent PLUS or Grad PLUS loans. It does not apply to private loans (including Federal Family Education Loan (FFEL) loans not held by the Department of Education.
When Will Loan Forgiveness Take Effect?
For 8 million borrowers, the plan’s loan forgiveness will take effect automatically, as the Department of Education has their income information. For the roughly 35 million other borrowers who may be eligible, they must submit their application by December 31, 2023.
Is There Anything Else I Should Know?
- To qualify, your federal student loans must have been taken out prior to June 30, 2022.
- This is one-time-only forgiveness.
- While this forgiveness is not taxable in most states, some states may tax borrowers on their student loan cancellation.
- There may be legal challenges to this plan, so stay up to date on the news as things develop.
The New Proposed Income-Driven Repayment Plan (IDR)
Income-driven repayment plans (IDR) allow most borrowers to have a monthly student loan payment that is affordable based on their income. This is the new IDR for undergraduate loans only. Note: It is a proposal right now and is undergoing a 90-day comment period.
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Department of Education Announcement: The Biden-Harris Administration’s Student Debt Relief Plan Explained
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Still have questions?
NYLAG Financial Counselors can help you understand your student loan options and help you with other financial issues.
- NYLAG Financial Counselors can help you understand your student loan options and help you with other financial issues. Click here to connect with a NYLAG financial counselor.