Federal Student Loan Forgiveness FAQ
The White House announced a plan to forgive some student loan debt along with other changes to federal student loan debt on Wednesday, August 24th. We’ve got answers to the most important questions collected here. We’ll be updating this article as new information surfaces.
Who is eligible for forgiveness?
If you have federal student loans and you make less than $125,000 (or $250,000 if married filing jointly or head of household) you’ll be eligible for up to $10,000 in student loan forgiveness. If you received Pell Grants then you’ll be eligible for an additional $10,000 (for a total of up to $20,000 in forgiveness.)
The income limits refer specifically to your adjusted gross income from either 2020 or 2021, but not 2022.
Do I need to do anything to get forgiveness if I qualify?
Probably. For some people, forgiveness should be automatic. If you are enrolled in an income driven repayment plan and you have recently certified your income then your loan servicer and the Department of Education should have everything they need.
If you are not in an income driven repayment plan you will almost certainly have to apply. The application is now available at https://studentaid.gov/debt-relief/application
Whether you are in an income driven repayment plan or not, you should make sure your contact information is up to date with your loan servicer and at www.studentaid.gov (if you don’t have an account go ahead and create one) ; address, email, phone number etc. If you’re not sure who your loan servicer is there are instructions for finding out here: https://studentaid.gov/manage-loans/repayment/servicers
What type of debt is eligible to be forgiven?
The short answer is federal student loans. Private loans are not eligible for forgiveness.
Parent PLUS, federal loan debt that was used to pay for graduate school, and federal loans for unfinished programs are all eligible. The cutoff date for eligibility is June 30th, 2022. Loans obtained after this date are not eligible for forgiveness.
Are payments still scheduled to restart September 1st?
No, the pause has been extended one final time through December 31, 2022. Payments will restart and interest will kick back in January 1, 2023.
How will this affect my taxes?
While loan forgiveness is usually treated as income for tax purposes, that isn’t the case here. Mostly. If you have federal student loans forgiven then you will not owe federal taxes on that amount. However, at least some states will treat the amount forgiven as income for state tax purposes.
If I have multiple loans, can I choose which will be canceled?
No, you will not be able to choose. There is a predetermined order to how loan balances will be cancelled.
The first factor is the type of loan, and it’s current status (in default or good standing):
- Federal loans in default.
- Privately owned FFELP loans in default.
- Federally owned FFELP loans and direct loans in good standing.
- Federal Perkins loans.
If you have more than one loan in one of the above categories, relief will be given in the following order:
- Loans with the highest interest rate.
- If rates are the same, unsubsidized loans will be canceled before subsidized.
- If subsidy and rate are the same, then newer loans will be canceled first.4. If rate, subsidy, and age are all identical then the loan with the lowest balance will be canceled first.
This predetermined order is good for the borrower since it prioritizes eliminating the highest interest debt first.
What if I made payments on my loans during the last 2 years of forbearance?
If you made “voluntary” payments during the forbearance period you will be eligible to have these payments automatically refunded to you if you complete the application for relief 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 qualify for $20,000 in relief as a Pell grant recipient and had a balance of $25,000 before March 2020 you would expect to have a balance of $5,000 after the relief is applied. But what if you made $7,000 in voluntary payments during the pandemic? That would bring your balance to $18,000. The automatic refund would work by canceling the $18,000 balance and refunding $2,000 to you. $18,000 + $2,000 = $20,000; the full amount of relief you qualify for.
It does appear that if you paid off your loans in full during the pandemic forbearance period, you won’t qualify for an automatic refund. However, you can contact your loan service directly and request a refund, which should make you eligible for relief again. We’ve requested more information on this specific situation and will update as soon as we know more.
Last updated October 26, 2022