FPG Corner: What You Need to Know About Student Loan Forgiveness

President Biden announced his administration’s plan for student loan forgiveness on Aug. 24. Read on below for everything you need to know.

Who qualifies for student loan forgiveness according to the income limits? 

Student loan borrowers earning under $125,000 per year (single filers) or $250,000 per year for married couples who file joint returns (MFJ) or head of households.   

How does the student loan cancellation work? 

Biden announced to cancel $10,000 in federal debt (for most borrowers) and $20,000 if you went to college on Pell grants. 

According to the press release, most borrowers will be required to fill out a form with the Education Department to certify that they qualify under the new income guidelines. The application will be available before the end of the year, the department said, and borrowers can sign up on its website for updates about the process (https://www.ed.gov/subscriptions).

The department also said it already has the income data for nearly 8 million borrowers. These people may get automatic cancellation. More information will be released as the program rolls out. 

Are public loans the only loans that qualify for the $10,000 loan forgiveness? 

Yes, only public loans. Education loans provided by private lenders do not qualify for cancellation. 

What if you owe more than $10,000 in student loan debt? 

President Biden stated he will extend a pause on federal loan payments until Dec. 31, 2022, which happens to extend them beyond the midterm election. This could give the Education Department enough time to recalculate borrowers’ monthly payments based on their new lower balances. 

What if you owe less than $10,000 in student loan debt? 

Student loan forgiveness will be capped at the amount owed. 

Will you have to pay tax on forgiven student debt? 

No, the stimulus package signed by Biden last year temporarily eliminated the tax burden student loan borrowers face if any of their debt is forgiven.  

Additional Information:

• Parent Plus loans (loans taken out by a parent to pay for child’s education) are eligible for the $10,000 debt cancellation, but subject to the income thresholds. 
• Graduate student loans are also eligible for up to $10,000 of debt forgiveness.  
• Borrowers who also received a Pell Grant will be eligible for up to $20,000 of loan forgiveness. Since Pell Grant recipients are awarded these grants based on extreme need, or very low income levels, these borrowers generally still have to take out additional loans and those additional loans will be eligible for up to $20,000 of forgiveness.  

Stay tuned for an update on how to file for student loan forgiveness once it is released from the Education Department.  

If you weren’t able to watch our Student Loans When Inflation is High Workshop – you can watch the replay here: Resuming Student Loan Payments When Inflation is High.

If you have additional questions, please submit a FPG Office Hours request.