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Student Loan Forgiveness: Here’s Who Qualifies Under Biden’s Plan
By Kaitlin Mulhere MONEY RESEARCH COLLECTIVE
The magic number is $125,000.
It’s official: Millions of Americans are set to get at least $10,000 in student loan forgiveness.
President Joe Biden announced the plan in a tweet, saying further details would come later Wednesday. But the broad strokes are that federal student loan borrowers earning less than $125,000 will receive $10,000 in debt cancellation, while borrowers who received need-based Pell grants during college will be eligible for $20,000 in forgiveness.
The decision will “give working and middle class families breathing room as they prepare to resume federal student loan payments,” Biden said in his announcement.
Payments are now set to resume on Jan. 1, 2023.
The long-awaited decision from Biden comes after an intense debate that divided many Democrats and policy experts over whether loan forgiveness would worsen inflation or be seen as a handout to well-off, college-educated Americans. Canceling $10,000 for all borrowers earning less than $125,000 will cost about $300 billion, according to projections from the University of Pennsylvania. It’s unclear how much the additional forgiveness for Pell recipients will add to the total price tag.
Debt forgiveness on this scale is unprecedented in the history of federal student loans. Experts say putting the policy into action will be an operational challenge that could drag on for months, particularly because there are still outstanding questions about the legality of Biden using his executive power to cancel the loans.
This is a developing story, and the administration hasn’t shared many specifics. Here’s what we know so far about who is eligible for student loan forgiveness:
Student loan forgiveness income limits
People with existing federal student loans who earn less than $125,000 a year are eligible for forgiveness. The announcement didn’t expand on the income cutoff beyond saying that it will be based on “annual income during the pandemic.”
It is likely to be based on your most recent adjusted gross income, which is your total income minus deductions (you can find on your tax return). The cutoff for married couples filing jointly is $250,000.
There is no sliding scale, so any borrower under the income cutoff who meets the other eligibility criteria will receive the full $10,000 discharge.
Which borrowers are eligible for additional relief?
In an effort to focus as much as possible on lower- and middle-income borrowers, the plan directs more forgiveness to borrowers who were Pell grant recipients during college. The majority of Pell grants go to students from households earning less than $40,000.
If you were one of them, you’re eligible for an additional $10,000 in forgiveness, for a total of $20,000.
If you’re not sure whether you received a Pell grant while in college, you can log into StudentAid.gov. You’ll need to create a Federal Student Aid ID if you don’t have one already.
Which types of student loans are eligible for forgiveness?
Biden’s announcement did not specify whether graduate student loans or parent PLUS loans would be covered under the plan. For now, we know the plan applies to federal undergraduate loans, including Direct loans (subsidized and unsubsidized), Perkins loans and loans from the older Federal Family Education (FFEL) loan Program.
Private student loans do not qualify, even if you had federal loans originally but refinanced them into a private loan.
How will student loan forgiveness work?
The majority of borrowers will need to opt in to student loan forgiveness, so to speak. For that, the department will be announcing further details “in the weeks ahead.”
The announcement says the application will be available no later than the end of the year, when the COVID-19 payment pause is scheduled to end.
If the Education Department has income data on file for you — if, for example, you’ve recently submitted paperwork to re-certify for income-driven repayment — then you may be eligible for automatic forgiveness if you meet the other eligibility requirements. The department says there are roughly 8 million borrowers in this group.
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Kaitlin Mulhere is Money's higher education editor, focusing on student debt, college affordability, and the payoff of different postsecondary programs. She also runs Money's annual Best Colleges ranking. She previously wrote for Inside Higher Ed and The Keene Sentinel in New Hampshire. She's a graduate of the University of Florida's journalism school.