On August 24, 2022, President Biden announced a plan to cancel up to $20,000 in federal student loans to help borrowers recover from the pandemic as the payment pause ends. Under the plan, if you received a Pell grant to help pay for your education, and you earn less than $125,000 per year ($250,000 for married couples and heads of household), you may be eligible to have $20,000 in your federal student loans canceled. If you never received a Pell grant, you may still be eligible for $10,000 in student loan debt cancellation if you earn below the $125,000/$250,000 levels.
How do I apply?
Most borrowers will have to apply for cancellation. The application is a short form, which borrowers can fill out online, including on a mobile device, in English or in Spanish. A paper application will be available later. Most borrowers will not be required to submit proof of their income, but a small percentage of borrowers will be asked to provide a copy of their tax return or proof that they didn’t have to file taxes after they apply.
The online application is available on the Department of Education’s website here. Borrowers who apply for cancellation will be notified when their application has been processed.
Borrowers will have until December 31, 2023 to apply for relief, but are encouraged to apply sooner since student loan bills are scheduled to resume in January 2023.
Although most borrowers will have to apply for cancellation, some borrowers may be eligible to have their loans canceled automatically because the Department of Education already has their income information on file. The Department has income information for borrowers who have recently submitted income information when applying for student aid on the FAFSA or when applying for an income-driven repayment plan. These borrowers may have their loans automatically canceled unless they choose to opt out.
What are the income requirements?
Only borrowers who made less than $125,000 ($250,000 for married couples filing jointly and for those filing as head of household) in either 2020 or 2021 are eligible for student loan debt cancellation.
For most borrowers, it is your own income that matters for eligibility. But if you were enrolled in school as a dependent student for financial aid purposes between July 1, 2021, and June 30, 2022, then your eligibility will instead be based on your parents’ income in 2020 or 2021. If you were a dependent student and you apply for cancellation, then the government will send your parents a Parent Income Form to complete.
What loans are eligible?
In order to receive cancellation, you have to have the right type of loans. The loans also must have been issued before June 30, 2022. Only certain federal student loans are eligible for cancellation. All loans that were eligible for the federal student loan payment pause are also eligible for cancellation. The following types of federal student loans are eligible for relief:
- Direct loans, including Parent PLUS, Graduate PLUS, and Direct Consolidation loans*
- FFEL loans held by the Department of Education
- Perkins loans held by the Department of Education
- Defaulted federal student loans
FFEL and Perkins loans that are not held by the Department of Education are not eligible for cancellation. Private student loans are also not eligible for cancellation.
*Note from the Department of Education: “Consolidation loans are also eligible for relief, as long as all of the underlying loans that were consolidated were ED-held loans and were disbursed on or before June 30, 2022. Additionally, consolidation loans comprised of any FFEL or Perkins loans not held by ED are also eligible, as long as the borrower applied for consolidation before Sept. 29, 2022.”
How do I know what type of loans I have?
You can find out what types of loans you have by logging on to StudentAid.gov and clicking on “My Aid” in your dashboard. 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 a loan, you’ll see the more detailed name for that loan as well as the servicer for each loan.
Direct Loans begin with the word “Direct” and are eligible for cancellation.
FFEL loans and Perkins loans are only eligible for cancellation if they are held by the Department of Education or are in default. FFEL loans begin with the word “FFEL” and Perkins Loans include the word “Perkins” in the name. To see if the FFEL or Perkins loan is held by the Department of Education, check the servicer name. If the name of your servicer starts with “Dept. of Ed” or “Default Management Collection System,” then your FFEL or Perkins loan is federally managed (i.e., held by ED) and eligible for cancellation.
How much in cancellation will I receive?
If you have eligible loans and meet the income requirements, the amount of debt you will have canceled depends on the outstanding balance of your loans and whether or not you ever received a Pell grant.
If you received a Pell grant and meet all the other requirements, you will get up to $20,000 in your loans canceled.
If you did not receive a Pell grant, you can get up to $10,000 of student loan debt canceled if you meet all the other requirements.
If your loan balance is less than what you’re eligible to receive in cancellation, you will only receive cancellation for the amount you owe. You will not be compensated for the difference between the amount of cancellation you’re eligible for and the amount of your actual loan balance.
Note: if you paid on your loans during the pandemic payment pause and your payments brought your loan balance below the amount of cancellation you are eligible for, you may be eligible for an automatic full or partial refund of the payments you made.
How do I know if I received a Pell grant?
Pell grants are typically given to lower- or moderate-income students who need assistance paying for college. You can check your StudentAid.gov account to see if you ever received a Pell grant, by clicking on the “My Aid” tab in your dashboard. This information may not appear in the dashboard for borrowers who received Pell grants before 1994, but they will still be eligible for the extra relief.
Borrowers do not need to know whether they received a Pell grant when they apply for relief. The Department of Education has the information and will make sure that all borrowers who received Pell get the full cancellation amount they are eligible for.
Parents who borrowed to help pay for their children’s education are only eligible for the extra relief for Pell grant recipients if the parent received a Pell grant for their own education. Otherwise, an income-eligible parent borrower can only receive up to $10,000 in cancellation for loans the parent owes, even if their child received a Pell grant.
Can I still get some of my eligible loans canceled even if I have some non-eligible loans?
Yes. If you have non-eligible loans, and eligible loans, you may still be able to have some of your loans canceled, but only the amount you’re eligible for on your eligible loans will be canceled. For example, if you have $10,000 in FFEL loans that are not held by the Department of Education, and $5,000 in Direct loans, you may be eligible for $5,000 in cancellation.
If I have more than $10,000/$20,000 in eligible loans, how will the cancellation be applied and will my payments change?
For borrowers with multiple eligible loans that add up to more than $10,000 (or $20,000, for Pell recipients), the Department will apply relief in a specific order outlined here, starting with loans in default. Borrowers cannot pick which loans will be canceled or reduced.
If you still have a remaining balance on a loan after cancellation, the Department will reamortize the loan (release a new schedule of payments needed to pay off the loan based on the new balance), which will result in lower monthly payments for many borrowers.
In addition, the Administration has announced that it is proposing a new, more generous income-driven repayment plan that would allow many borrowers to cut their income-based payments in half. But that new plan is not yet final—the terms may change and borrowers may not be able to enroll for months. Other payment plans are currently available that set monthly payments based on your income and family size and may be more affordable than the standard payment plan. For more information about income-driven repayment, see here.
Will I have to pay taxes on the amount that is canceled?
You will not have to pay any federal taxes on the canceled loans. Most borrowers will also not have to pay any state taxes on their canceled debt.
If you live in a state where the forgiven amount will be taxed, you should contact a tax professional to see if you will be required to pay taxes on the forgiven amount. You may be able to avoid paying taxes on the amount if you can show that you are insolvent.
Can I opt out of cancellation?
Yes. If you are worried about state tax issues, you can opt out of automatic cancellation. If you do not receive automatic cancellation, you can opt out by simply not applying for relief.
Can I get a refund if I paid on some of my loans during the pandemic payment pause?
Yes. If you made payments on your federal student loans during the pandemic payment pause, you can request a refund of those payments by contacting your loan servicer. If your payments brought your loan balance below the amount of cancellation you’re eligible for, you may get an automatic refund after you apply for cancellation for the amount that brought your loan balance below your eligible relief.
If I apply for cancellation, can I also apply for other forms of loan relief, like Public Service Loan Forgiveness (PSLF) or Borrower Defense?
Yes. You can apply for cancellation and for other types of relief, which may provide more relief than the $10,000 to $20,000 offered through this one-time cancellation program. For example, if you work for the government or a nonprofit, you may also wish to apply for PSLF, which can result in cancellation of your entire eligible remaining loans after 120 months of qualifying payments and a refund of any eligible payments made after the 120 payments. The Department has said that it will identify borrowers who submit applications for both PSLF and one-time cancellation and will apply the PSLF cancellation if that provides more relief than one-time cancellation.
Where can I learn more about the cancellation plan?
Borrowers can check the Department of Education’s website on cancellation, which includes a detailed FAQ section, and sign up to get updates about the cancellation plan at studentaid.gov.