FAQS: Biden’s Student Debt Cancellation Plan

Check out our Frequently Asked Questions (FAQs) and answers about Biden’s student debt cancellation plan below.

On August 24, 2022, President Biden announced that the federal government would cancel $10,000 in federal student loan debt for borrowers with individual incomes less than $125,000 ($250,000 for married couples or heads of household), with an additional $10,000 ($20,000 total) in cancellation if those borrowers received a Pell Grant at any time to help fund their education.

President Biden also announced that an incoming new Income-Driven Repayment plan which will lower payments for undergraduate loans, setting payments at 5% of discretionary income, and redefining that to mean any income above 225% of the federal poverty level. This plan is not currently available, and the Department of Education has not released more information.

As more information is provided, we will continue to update these FAQS to reflect additional changes.

Last updated on 09/21/2022 at 10:58AM ET.

WHAT BORROWERS ARE ELIGIBLE FOR DEBT CANCELLATION?

Are all borrowers eligible for $10,000 debt cancellation?

No. Only borrowers whose individual income is less than $125,000 or household income is less than $250,000 are eligible to receive debt cancellation from this announcement.

Who is eligible for the additional $10,000 ($20,000 total) in debt cancellation?

Any borrower who meets the income eligibility criteria and who also received a Pell Grant at any time to support their education is eligible for an additional $10,000 in debt cancellation.

How do I know if I received a Pell grant?

Log in to www.StudentAid.gov, the main portal for borrowers’ federal student loans. Once logged in, you can view all of your federal loans, and can access information about and applications for different repayment plans or cancellation programs. You should be able to view if you received Pell Grants on your “dashboard”.

Does it matter when I received a Pell Grant in terms of whether I qualify for the additional $10,000 in cancellation?

No. A borrower who received a Pell Grant at any time in any amount is eligible for a total of $20,000 of cancellation, as long as their current income is below the $125,000 maximum for an individual or $250,000 maximum for a married borrower, regardless of when they received the Grant and regardless of whether the borrower was still Pell-eligible when they took out the loans that could be cancelled.

What if I received a Pell Grant in grad school, does that count?

All borrowers who received a Pell Grant are eligible. However, typically Pell Grants are only awarded to undergraduate students. Many graduate students or graduate loan borrowers may have previously received a Pell Grant during their undergraduate studies, and would thus be eligible for an additional $10,000 of cancellation. 

Are Pell Grant recipients who now earn above the individual and household income cutoffs eligible?

No, all borrowers applying for cancellation must meet the income threshold to be eligible for cancellation.

For the income eligibility, what counts as income? What year?

The Department will be looking at annual federal income from either the 2020 or 2021 tax year. In other words, if in either 2021 or 2020 your income was below the income caps that have been described, you would be eligible for relief. Any source of income that is taxable and would be included in a borrower’s Adjusted Gross Income counts towards these caps. According to the IRS, gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. If, once the cancellation application is released, a different standard is provided, this FAQ will be revised.

For the income eligibility, does household size make a difference?

The income threshold does not depend on household size. 

For the income eligibility, will the Department consider my assets? Other debts?

Only income will be considered under the Department of Education’s eligibility process. The income caps for cancellation are individual incomes of $125,000 and household income of $250,000.

For the income eligibility, what if I am a dependent?

If you are a dependent, your parents’ income will be considered for your eligibility for cancellation.  

Do I need to have completed my degree to qualify?

No, you just need to meet the income threshold to be eligible for cancellation. 

Does this apply if I am still in school or have returned to school?

Yes, as long as you meet the income eligibility requirements and your loans were disbursed before June 2022. 

WHAT LOANS ARE ELIGIBLE?

What types of loans are eligible?

The following types of federal student loans with an outstanding balance as of June 30, 2022, are eligible for relief:

  • William D. Ford Federal Direct Loan (Direct Loan) Program loans
    • Subsidized loans
    • Unsubsidized loans
    • Parent PLUS loans
    • Graduate PLUS loans
    • Consolidation loans, as long as all of the underlying loans that were consolidated were first disbursed on or before June 30, 2022
  • Federal Family Education Loan (FFEL) Program loans held by ED or in default at a guaranty agency
  • Federal Perkins Loan Program loans held by ED
  • Defaulted loans (includes ED-held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, parent PLUS, and graduate PLUS; and Perkins loans held by ED)

In short, if your loans benefited from the pause on payments since March 2020, they are likely covered by this announcement.

While some FFEL and Perkins loans are included, others will need to consolidate. Non-defaulted commercially held FFEL loans (i.e., held by a private bank or entity) borrowers will need to consolidate their loans to benefit from cancellation, as will Perkins borrowers whose loans are held by the school or institution. 

To see what kind of loan you have or how to consolidate your loans, view the FAQs below.

Is there a loan disbursement cutoff date for which loans qualify for forgiveness?

All loans disbursed through June 30, 2022, are eligible for forgiveness.

If I consolidated my loans, what disbursement date is considered?

The original loan disbursement date, rather than the consolidation date, is considered for what loans qualify for cancellation. 

Does this apply to private student loans?

No. This announcement does not apply to private student loans, including private student loans that were used to refinance a federal student loan.

Am I eligible for cancellation if my loans are in default?

Yes, defaulted loans are eligible for debt relief. If you have a remaining balance on your defaulted loan(s) after relief is applied, you will be eligible to take advantage of the Fresh Start Initiative.

Does this apply if your loans are in in-school deferment?

Yes, all loans disbursed through June 30, 2022 are eligible for forgiveness. 

HOW WILL DEBT CANCELLATION ACTUALLY WORK AND ARE THERE OTHER FINANCIAL IMPLICATIONS FOR ME?

Does the cancellation amount apply to principal + interest?

Typically payments are applied to outstanding interest first, and then to principal. We anticipate that this is how cancellation will be applied. We will update as more information becomes available. 

If I have multiple loans, how will the cancellation be applied to my loans?

For borrowers with multiple loans, the Department of Education has announced they will apply the relief in the following order:

  • Defaulted ED-held loans
  • Defaulted commercial FFEL Program loans
  • Non-defaulted Direct Loan Program loans and FFEL Program loans held by ED
  • Perkins Loans held by ED

If you have multiple loans in a program type (e.g., multiple Direct Loan Program loans), the Department will apply the relief in the following order:

  • Apply relief to loans with the highest statutory interest rate.
  • If interest rates are the same, apply to unsubsidized loans prior to subsidized loans.
  • If interest rate and subsidy status are the same, apply to the most recent loan.
  • If interest rate, subsidy status, and disbursement date are the same, apply to the loan with the lowest combined principal and interest balance.
If I have multiple loans, can I request which one(s) receive cancellation?

The Department of Education will apply cancellation as described in the answer above, even if borrowers request otherwise.

Do I have to pay federal or state taxes on this?

Through 2025, there is no federal tax liability for cancelled student loan debt. Whether cancelled student loan debt is taxed as income at the state level will vary state by state. You should consult a tax expert if you have questions about taxes in your state. 

Am I eligible for a refund if I made voluntary payments during the pandemic?

Yes. You can call your servicer and request a refund for those payments, even if you have paid off the loan, or you will automatically receive a refund of your payments during the payment pause if:

  • you successfully apply for and receive debt relief under the Administration’s debt relief plan, AND
  • your voluntary payments during the payment pause brought your balance below the maximum debt relief amount you’re eligible to receive but did not pay off your loan in full.

For example, if you’re a borrower eligible for $10,000 in relief; had a balance of $10,500 prior to March 13, 2020; and made $1,000 in payments since then—bringing your balance to $9,500 at the time of discharge—we’ll discharge your $9,500 balance, and you’ll receive a $500 refund.

Other borrowers can still receive refunds on voluntary payments made after March 13, 2020 by contacting their servicer. It’s important to note that these refunded payments will increase your loan balance and your monthly payments. If you expect to have a balance after discharge is applied and wish to request a refund, you can do so by contacting your servicer until Dec. 31, 2023. Borrowers who expect to receive $10,000 or $20,000 in cancellation should consider requesting payments you have made since March 2020 up to those amounts, and should consult a financial counselor if they have additional questions.

If you consolidated your loan after March 13, 2020, refunds aren’t available for any voluntary payments made prior to the consolidation.

Refund requests can only be made by you and refunded to you, even if someone else made a payment on your loan (such as a student loan refinancing company).

How will this impact my credit score?

It is not yet known how the U.S. Department of Education plans to report this cancellation to the credit bureaus. 

WHAT DO I NEED TO DO TO GET MY DEBT CANCELLED?

How do I figure out what kind of loan I have?

You can identify your loan types by logging on to StudentAid.gov and selecting “My Aid” in the dropdown menu under your name (if you do not have an FSA ID, click “Create Account”). In the “Loan Breakdown” section, you’ll see a list of each loan you received. You’ll also see loans you paid off or consolidated into a new loan. If you expand “View Loans” and select the “View Loan Details” arrow next to a loan, you’ll see the more detailed name for that loan.

Direct Loans begin with the word “Direct.” Federal Family Education Loan Program loans begin with “FFEL” or “Stafford.” Perkins Loans include the word “Perkins” in the name. If the name of your servicer starts with “Dept. of Ed” or “Default Management Collection System,” your FFEL or Perkins loan is federally managed (i.e., held by ED).

Is the $10,000 of federal student loan debt cancellation for all eligible borrowers automatic, or does it require documentation in the application? If so, what documentation?

Most borrowers will have to apply using the Department of Education’s online application. Some borrowers, such as those who filled out an IDR or FAFSA application using either 2020 or 2021 tax year information should receive cancellation automatically, without an application. The application was not released at the same time as the announcement but is expected in early October.

Is the additional $10,000 in cancellation for Pell Grant recipients automatic, or does it require documentation of Pell-grant receipt in the application? If so, what documentation?

It only requires the documentation in the application for cancellation to establish your income eligibility for the initial $10,000 in cancellation. Most borrowers will have to apply using the Department of Education’s online application. You do not need to document that you received a Pell Grant.

Do I have to show proof of income for the income cutoff? To whom do I submit the info? How?

The Department is in the process of creating a simple online form for borrowers to complete. Paper forms will also be available in English and Spanish. Details will be available soon on https://studentaid.gov/debt-relief-announcement/.

Are there any other steps that borrowers need to take?

If your loan payments have not been paused since March 2020, then your loan is likely a commercially held FFEL loan that will need to be consolidated, which is the process of converting one federal student loan type to a federal Direct Consolidation Loan. Borrowers with commercially held FFEL loans will need to consolidate into Direct Consolidation Loans before applying for cancellation. You can learn more about determining your loan type and about consolidation in other FAQs below.

How do I confirm if I have a FFEL loan that needs to be consolidated?

Log in to www.StudentAid.gov. You can see your loan information in your “dashboard,” including what kind of loans you have (e.g., FFEL versus Direct). If you are trying to find out if you have commercially held FFEL loans and you need to consolidate, you can check your loan data to see if your FFEL loan is held by a private bank or entity, see here for instructions on how to get your loan data file. Note that if your federal loan payments have NOT been paused during the pandemic, you likely have commercially-held FFEL loans.

How do I consolidate my loans?

To consolidate your loans, log in to Studentaid.gov. Hover over “Manage Loans” located in the top toolbar, and click on “Consolidate My Loans” in the dropdown menu. You can access the consolidation application there. For a short video on how to consolidate, visit: https://forgivemystudentdebt.org/consolidating-your-loans/. In the application, you will need to select each of the loans that you want to include in your new “consolidated” loan. If you hover over the Loan Type code (a letter with a question mark icon next to it) next to each loan listed, a box with a description will appear. If the loan is a FFEL loan, it will include the word “FFEL” in the description.  

What is the deadline to apply for student debt cancellation?

You will have until Dec. 31, 2023, to submit your application for student loan debt relief.

How do I apply for student debt cancellation?

The Department of Education plans to release an online application by early October, and will release a paper version of the application some time after that.

HOW DOES THE CANCELLATION ANNOUNCEMENT AFFECT OTHER FEDERAL STUDENT LOAN PROGRAMS AND RECENT ANNOUNCEMENTS?

What is happening with the payment pause?

The payment pause has been extended to December 31, 2022. You should receive a monthly statement at least 21 days before your next payment is due.

How does this impact the limited PSLF Waiver?

This is a separate announcement from the limited PSLF Waiver, and will require different actions for borrowers. Importantly, for borrowers who continue to have student loans after this cancellation, the PSLF Waiver could result in the cancellation of the rest. For more information on the limited PSLF waiver, visit www.Forgivemystudentdebt.org. The PSLF Waiver will expire on October 31, 2022.

How does this impact the IDR Account Adjustment?

This is a separate announcement from the IDR Account Adjustment, and will require different actions for borrowers. Importantly, for borrowers who continue to have student loans after this cancellation, the IDR Account Adjustment could result in the cancellation of the rest. Importantly, borrowers with commercially-held FFEL loans will need to consolidate in order to take advantage of the IDR Account Adjustment. For more information on the IDR Account Adjustment, visit https://studentaid.gov/announcements-events/idr-account-adjustment.

What about the new affordable repayment plan that President Biden announced?

In his announcement about debt cancellation, President Biden announced a new affordable repayment plan. That plan is not currently available, and its details are not finalized. These FAQs will be updated as soon as more information is available.

WHERE CAN I GET HELP?

Where can borrowers find the Department’s information about cancellation?

For information on cancellation from the Department of Education, visit https://studentaid.gov/debt-relief-announcement/.

Where can borrowers go if they need help with their loans?

The U.S. Department of Education’s website, www.StudentAid.gov, is always the main portal for borrowers’ federal student loans. Once logged in, you can view all of their federal loans, and can access information about and applications for different repayment plans or cancellation programs.

You can also visit https://studentaid.gov/debt-relief-announcement/ for more detailed information on the cancellation announcement.

For information about Public Service Loan Forgiveness, borrowers can visit www.ForgiveMyStudentDebt.org, which contains an explanation about the PSLF program and short-term changes, as well as short tutorial videos to guide borrowers through the steps they need to take by October 31, 2022.

I still have questions, who can I ask?

Many states have Student Loan Ombudspersons, a state employee who can help residents with issues related to their student loans and student loan servicers. You can find a list of states with ombudspersons and their contact information here: https://protectborrowers.org/state-based-student-loan-ombudsmen/

 

There are limited legal resources to assist student loan borrowers, but some options do exist. A list of legal resources can be found here:

https://www.studentloanborrowerassistance.org/resources/referral-resource/legal-resources/