What is the Student Loan Cancellation?

Last month, President Biden laid out a plan to cancel up to $20,000 in federal student loan debt per borrower. Beneath this seemingly simple plan comes quite a few questions about how, exactly, it will work. Naturally, borrowers have questions. Here are a few of the answers we know so far:

Am I eligible for Student Loan Cancellation?

• To be eligible, your annual income must have fallen below $125,000 (for individuals) or $250,000 (for married couples or heads of households)
• If you received a Pell Grant in college and meet the income threshold, you will be eligible for up to $20,000 in debt cancellation.
• If you did not receive a Pell Grant in college and meet the income threshold, you will be eligible for up to $10,000 in debt cancellation.

Was my income below the limits?

The relief will be limited to borrowers who make less than $125,000 per year, married couples, or heads of households earning less than $250,000.

Review your recent tax returns to confirm your income fell below those thresholds in 2020 or 2021 (either will work). The Education Department will be considering people’s adjusted gross income, or AGI, which may be different than your gross salary.

To confirm your AGI for 2020 and 2021, look for Line 11 on the front page of your tax return, known as Form 1040.

Who qualifies for automatic loan cancellation?

To automatically verify certain borrowers’ income data for tax years 2021 or 2020 (whichever is lower), the Education Department plans to use data obtained through the Free Application for Federal Student Aid, or FAFSA, as well as via income-driven repayment plans.

The FAFSA is how families apply for financial aid for college each year, while income-driven repayment plans allow borrowers to repay their loans in a more affordable way by capping their monthly bills at a share of their earnings. Both require proof of income; however, because the government only cares about the earnings for 2020 or 2021, the timing here will matter.

If you recertified your earnings on an income-driven repayment plan in 2021 or 2022, you may qualify for the automatic cancellation, said higher education expert Mark Kantrowitz. For the FAFSA, meanwhile, you’ll need to have filed it for the 2022-2023 academic year, he said.

Should I still apply for relief if the government has my income data?

Yes. Experts say that even if you believe the government already has your income information, you should still go through the formal request process when the application goes live, which the Education Department says will happen by “early October.”

How quickly will forgiveness occur?


Borrowers could see the loan cancellation reflected on their accounts within six weeks. They should also receive a notice from the loan servicer when they receive the forgiveness, showing how it was applied to their loans.

How much of my Student Loan debt may be canceled?

President Joe Biden announced on Aug. 24 that most federal student loan borrowers will be eligible for some forgiveness: up to $10,000 if they didn’t receive a Pell Grant, which is a type of aid available to low-income undergraduate students, and up to $20,000 if they did. (Unsure if you got one? We have tips to help you figure that out.)

Earlier this month, the U.S. Department of Education said a simple application to receive that forgiveness will be ready by “early October.” In the meantime, borrowers can sign up on its website for updates on the form’s status. (Select the first option of the checkboxes)

What Dates do I need to remember?

Early to Mid-October – Forgiveness Application will be released.

November 15th – Federal student loan borrowers should aim to apply for forgiveness no later than Nov. 15 if they want to get the cancellation in order to impact their loan balance by the time the pandemic-era payment pause on federal student loans expires on Dec. 31. (see the next date below for more information)

December 31st – In addition to Biden’s announcement on student loan forgiveness, he said he would extend the payment pause on federal student loans until Dec. 31. Payments will resume coming in January. It’s the seventh extension of the policy started under the Trump administration and it will likely be the final one.

December 31, 2023 – For now, the Education Department is saying that the final date to apply for forgiveness will be the end of next year.

How will Student Loan Cancellation Affect My Taxes?

As a general rule, a discharge of indebtedness counts as income and is taxable, however, Student Debt Cancellation is not considered as taxable income on a federal level. Only certain states (North Carolina, Indiana, Mississippi, Arkansas, Minnesota, Wisconsin, and California) will pay taxes on this income.

For more information on state-by-state Student Loan Cancellation taxation, read here:

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