On August 24th, President Biden announced his administration’s plans to cancel up to $20,000 in federal student loans in his three-part plan to ease the burden of student debt, stemming in part from the pandemic-caused economic crisis. While this policy will help many and we are excited to see movement on alleviating the overwhelming student debt crisis in the U.S., it falls short of the original promise to forgive all student loan debt and we still believe it is not enough. We will continue advocating to ensure all of our members receive the relief they need to be free from student debt.
We’re here to break it down for you and tell you everything you need to know about the debt cancellation program.
- Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for married couples.
- Eligibility will be based on your adjusted gross income from either 2020 or 2021, but 2022 income will not.
- Forgiveness is available to people of all ages.
- Only individuals with federal loans are eligible to apply.
- Individuals who did not finish their degree are still eligible.
- Loans were obtained before July 1st, 2022.
- Borrowers who are dependent students will be eligible for relief based on parental income.
Are Independent Contractors Eligible?
- Yes! As long as you are able to verify your adjusted gross income is under the $125,000 threshold from either your 2020 or 2021 tax fillings.
What Student Loans are Eligible for Debt Forgiveness?
- If you received a Pell Grant and meet these income requirements, you could qualify for $20,000 in cancellation.
- If you have a Non-Pell Grant federal student loan then you could qualify for $10,000 in debt forgiveness.
- Federal PLUS loans which are commonly referred to as a Direct PLUS Loan when the borrower is a parent of undergraduate students or a Grad PLUS Loan when the borrower is a graduate student or professional student. For forgiveness on a Direct PLUS loan, the parents adjusted gross income is used to determine eligibility.
- Private loans are not eligible to qualify.
Will You have to Pay Taxes on the Cancelled Debt?
- No, the debt relief will not be treated as taxable income for federal income tax purposes.
- Any debt forgiven through January 2026 is exempt from federal income taxes.
When and Where Can You Apply?
- The administration believes up to 8 million people will have their loans forgiven automatically. If you’re already enrolled in some kind of income-driven repayment plan and have submitted your most recent tax return to certify that income, your loan servicer– find your servicer– and the Education Department know how much you earn and you should not need to do anything else.
- For all others, the application will be available no later than when the pause on federal student loan repayments terminates at the end of the year, December 31st. More information on claiming relief will be available to borrowers in the coming weeks.
- Borrowers can sign up to be notified when this information is available at StudentAid.gov/debtrelief.
How Will This Change Student Loan Payments Going Forward?
- Pause on federal student loan repayment will be extended one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023.
- The announcement included a new income-driven repayment plan that aims to protect low-income borrowers by capping monthly payments for undergraduate loans at 5% of a borrower’s discretionary income– a 50% decrease from the current cap at 10%. Both current and future borrowers will qualify for this repayment plan.
- Also included in the income-driven repayment proposal is forgiveness for those with loan balances of $12,000 or less after 10 years of payments–a change from the current 20-year mark.
- No borrower earning under 225 percent of the poverty level — or what a $15 minimum wage worker earns annually — will have to make a payment.
What is Income-Driven Repayment?
- Payments are calculated based on your earnings and readjusted each year.
- These calculations are determined by discretionary income. Discretionary income is usually defined as the amount earned above 150% percent of the poverty level.
- Under the new income-driven repayment plan borrowers’ loan balances will not grow as long as they make their monthly payments, even when they are not required to make any payments because their income is too low. Thus, the borrower is always paying towards the principal and not accruing interest.
What is the Limited-Time Public Service Loan Forgiveness Program?
- If you have worked in public service–federal, state, local, tribal government, or a non-profit organization– for 10 years or more, even if not consecutively, you may be eligible to have all your student debt canceled.
- Find out if you’re eligible here.
- The deadline for applying for the waiver is October 31st, 2022 and you can apply here.
Some Stats From the White House
- Pell Grant recipients are more than 60% of the borrower population. The Department of Education estimates that roughly 27 million borrowers will be eligible to receive up to $20,000 in relief
- Provide relief to up to 43 million borrowers, including canceling the full remaining balance for roughly 20 million borrowers.
- The Department of Education estimates that, among borrowers who are eligible for relief, 21% are 25 years and under and 44% are aged 26-39. More than a third are borrowers age 40 and up, including 5% of borrowers who are senior citizens.