Student loan forgiveness plan: Here’s what you need to know

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In a Nutshell

President Biden’s student loan forgiveness plan will cancel up to $20,000 worth of federal student loans for millions of Americans who qualify.
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President Joe Biden’s student loans forgiveness plan promises relief to tens of millions of borrowers saddled with education debt. The executive action delivers on a campaign promise to address the ballooning $1.6 trillion in federal student loan debt held by 43 million Americans.

But legal challenges are threatening the program — putting the 16 million applications already approved for student loan debt relief in limbo.

On Nov. 10, a federal judge in Texas rejected the plan, declaring it unlawful. Although the Justice Department is appealing the verdict, the Department of Education has stopped accepting new applications for debt relief and placed approved applications on hold.

This isn’t the program’s only legal challenge. A federal appeals court issued a preliminary injunction against the program on Nov. 14 after six states sued to challenge the loan forgiveness plan in October. The U.S. Supreme Court agreed in December to decide whether the Biden administration has the authority to cancel student loan debt.

The moratorium on student loan payments is also under fire. In March, SoFi Bank, a private student loan lender, filed a lawsuit against Secretary of Education Miguel Cardona and the U.S. Department of Education, seeking an end to federal student loan forbearance. The bank claims that the latest extension of the forbearance plan is “unlawful on multiple grounds” and has caused millions of dollars in losses from borrowers not refinancing during the payment pause.

If the administration overcomes the legal obstacles, the White House says that nearly 45% of student loan borrowers — that’s more than 19 million people — can have their federal student loan debt fully cancelled under the plan. But not all types of student loans qualify for forgiveness. The debt cancellation plan applies only to federal student loans, which are funded by the U.S. government. Private loans are not eligible.

In addition to loan forgiveness, the president extended the pandemic-related moratorium on student loan payments and interest through the end of 2022. Although payments were expected to resume Jan. 1, 2023, the Biden administration extended the payment pause. Payments will now resume in October 2023.

Read on for more information about the Biden student loan forgiveness policy and whether you may qualify for up to $20,000 in student loan debt relief.

Do I qualify for student loan forgiveness?

If you’re single and earn less than $125,000 per year, you qualify for $10,000 in federal student loan debt cancellation. If you’re married and file your taxes jointly or are a head of household, you qualify if your joint income is under $250,000 per year.  

If you received a Pell Grant and meet the same income requirements, you may qualify for an additional $10,000 in debt relief — for a total of $20,000. Federal Pell Grants are typically awarded to undergraduate students with an exceptional financial need.

In addition to those who have already graduated, current dependent students are also eligible for loan forgiveness as long as their parents’ income is below the thresholds required to qualify. To be eligible, the loans must have been originated by June 30, 2022.

How to know if you have a Pell Grant

If you’re unsure whether you received a Federal Pell Grant, you can log into your account on the Department of Education’s Federal Student Aid website ( You’ll be able to view your loans and grants there.

How to sign up for student loan forgiveness

The roughly 8 million borrowers who have already provided their income data to the Department of Education will receive relief automatically.

If the Department of Education doesn’t have your income data, you’ll need to fill out the student debt relief application that was released in both English and Spanish on Oct. 17, 2022. You won’t need to log in or provide any documents to apply.

What types of loans are eligible for student loan forgiveness?

There are two main types of student loans — federal loans and private loans. Federal loans are offered by the U.S. Department of Education. Private loans are offered by private lenders, which include banks and credit unions.

Student debt cancellation is being targeted to borrowers with loans held by the Department of Education. These loans include the following:

  • Direct subsidized loans — These are available to eligible undergraduate students who have demonstrated financial need.
  • Direct unsubsidized loans — These are available to eligible undergraduate, graduate and professional students, regardless of financial need.
  • Direct PLUS loans — Eligible graduate or professional students, or eligible parents of dependent undergraduates, can take out a PLUS loan. This includes Parent PLUS loans.
  • Direct consolidation loans — This type of loan allows you to combine all of your eligible federal student loans into a single loan with a single federal student loan servicer.

How to get a refund for loans paid during payment pause

Borrowers may be eligible for a refund if they made payments on federal student loans during the repayment moratorium that’s been in effect since March 2020. According to the Federal Student Aid website, you can get a refund for any payment you made beginning March 13, 2020. Just keep in mind that depending on your circumstances, you may have to pay some or all of the refunded money back to cover your remaining loan balance.

More student debt relief may be on the way

The Department of Education is proposing a new income-driven repayment plan that would cap monthly payments for undergraduate loans at 5% of a person’s discretionary income instead of the current 10%. Borrowers with both undergraduate and graduate loans would pay a weighted average rate. Additionally, it would raise the amount of income that’s considered nondiscretionary.

The proposed rule would also forgive loan balances after 10 years of payments — instead of the current 20 years under many income-driven repayment plans — for borrowers with original loan balances of $12,000 or less.

Unlike current income-driven repayment plans, borrowers’ loan balances would not grow as long as they were making their required monthly payments.

What’s next? Some states could treat student debt relief as taxable income.

With student loan forgiveness on the way, as many as 43 million borrowers could see their loan balance either reduced or wiped out altogether. While this plan lifts a heavy financial burden, it could also result in a tax hit for borrowers in some states.

The IRS generally treats forgiven and canceled debts like income. But because of provisions in the American Rescue Plan signed into law last year, Bidens’s student loan debt relief will not be treated as taxable income for the federal income tax purposes.

But that doesn’t mean relief will be exempt at the state level. Thirteen states could potentially treat loan forgiveness as taxable income to borrowers, according to the Tax Foundation, an independent tax policy nonprofit. You can check with your state for more information.


About the author: Brad Hanson is a senior editor at Credit Karma. His 30 years of experience in print and digital media includes work for the Los Angeles Times-Washington Post News Service, and Polyvore. Most recently before… Read more.