Student Loan Forgiveness: Who Qualifies and Income Limits

This story has been updated to reflect new information released about which loans are eligible for relief.

It’s official: Millions of Americans are set to get up to $20,000 in student loan forgiveness.

President Joe Biden announced the at the end of August, saying that federal student loan borrowers earning less than $125,000 will receive $10,000 in debt cancellation, while borrowers who received need-based Pell Grants during college will be eligible for $20,000 in forgiveness.

The department estimates that some 20 million borrowers could see their loans completely wiped out. The forgiveness will “give working and middle class families breathing room as they prepare to resume federal student loan payments,” Biden said in his announcement.

Monthly payments are now set to resume on Jan. 1, 2023.

The long-awaited decision from Biden comes after an intense debate that divided many Democrats and policy experts over whether loan forgiveness would worsen inflation or be seen as a handout to well-off, college-educated Americans. The loan forgiveness plan is estimated to cost about $400 billion dollars, according to the Congressional Budget Office. (The Education Department's estimate is lower, at $305 billion.)

Republicans criticized the announcement as an insult to taxpayers who’ve already paid off their loans or chose not to go to college. Others argued it was a good first step, even though it still falls short of the $50,000-per-borrower automatic cancellation that some Democrats and advocates, including the NAACP and Student Borrower Protection Center (SBPC), wanted.

“This progress is historic, but also just a start,” SBPC Executive Director Mike Pierce said in a statement. “Debt-free higher education remains out of reach for most people. On our current course, tens of millions of families will continue to struggle under the weight of student debt for decades to come.”

Debt forgiveness on this scale is unprecedented in the history of federal student loans. Experts say putting the policy into action will be an operational challenge that could drag on for months, particularly because there are still outstanding questions about the legality of Biden using his executive power to cancel the loans.

This is a developing story, and the administration hasn’t shared many specifics. Here’s what we know so far about who is eligible for student loan forgiveness:

Student loan forgiveness income limits

People with existing federal student loans who earn less than $125,000 a year are eligible for forgiveness. The cutoff for married couples filing jointly is $250,000. The announcement didn’t expand on the income cutoff beyond saying that it will be based on "annual income during the pandemic."

Jessica Thompson, vice president at The Institute for College Access and Success (TICAS), says administration officials confirmed on a call Thursday that income eligibility would be based on adjusted gross income, which is your total income minus deductions (you can find that on your tax return).

The cutoff will be based on 2020 or 2021 income. If your income was below the threshold in either of those years, you're eligible, according to senior administration officials.

There is no sliding scale, so any borrower under the income cutoff who meets the other eligibility criteria will receive the full amount of forgiveness.

Roughly ninety-five percent of borrowers are still captured under these income limits, the department says.

Which borrowers are eligible for additional relief?

If you received a Pell Grant while in college, you’re eligible for an additional $10,000 in forgiveness, for a total of $20,000. This detail helps target the relief more toward borrowers with lower- and middle-income backgrounds.

Most Pell Grants go to students from households earning less than $40,000, and nearly all go to households earning under $60,000, the department says. These students are more likely to have student loans and borrow higher amounts. For example, more than 8 out of 10 Pell Grant recipients who graduate from four-year colleges have student loans, and their average debt is $4,500 more than their peers, according to TICAS.

If you’re not sure whether you received a Pell Grant while in college, you can log into StudentAid.gov. You’ll need to create a Federal Student Aid ID if you don’t have one already.

Which types of student loans are eligible for forgiveness?

The forgiveness applies to most types of federal loan that were disbursed by June 30, 2022. That covers: Direct loans (subsidized and unsubsidized) for undergraduate students, Direct PLUS loans for graduate students and parent borrowers, and Direct Consolidation loans. Loans that were in default prior to the pandemic forbearance are covered, too.

Also included are some Perkins loans and loans from the Federal Family Education Loan (FFEL) program. Here’s the important caveat: The announcement says forgiveness applies only to loans “held by the department.” That would exclude the majority of FFEL loans, which are backed by the federal government but owned by private lenders.

Private student loans do not qualify, even if you had federal loans originally but refinanced them into a private loan.

Not sure what type of debt you have? If you know who your federal loan servicer is, you can log in to your account to see what type of federal loans you have. (These are the companies that manage repayment for the federal government, like Nelnet and MOHELA.)

You can also see what type of federal loans you have by logging in at StudentAid.gov. You’ll need to create a Federal Student Aid ID if you don’t have one already.

Private loans will not be reported in either of those places. For details on those debts, you’ll have to go to your private student loan servicer (depending on who you borrowed from, this may be the lender or a separate company). If you’re unsure whether you have private student loans, request a free credit report from annualcreditreport.com.

What are my options if I have FFEL loans that aren't eligible?

While the administration originally said borrowers with older, commercially held FFEL loans could consolidate their loans into the Direct Loan program to access the loan forgiveness, that rule has now changed.

The reversal is likely due to the administration's concern that the private banks that own these loans would have the grounds to sue to block the debt forgiveness. (At least three lawsuits have already been filed.)

If your loans were consolidated by Sept. 29, then you're eligible, according to the government's latest guidance. If not, the department says it is looking to other options to help borrowers with privately-held FFEL and Perkins loans, but it's unclear what those may be.

Does it matter where I attended college or if I graduated?

No. While there was speculation that the forgiveness might be limited to students who attended public colleges, that detail was left out of the final plan.

You do not need to have graduated to have your loans forgiven.

Do current students qualify for Biden’s loan forgiveness?

Yes. If you are currently enrolled in college and you have already borrowed from the federal government, you are covered under the plan. The loan forgiveness applies to loans that were disbursed by June 30, 2022. Note that the effective date means if you’re borrowing for this upcoming academic year and your loans haven’t been disbursed yet, those loans are not eligible.

Borrowers who are dependent students will be eligible for relief based on parental income, rather than their own income.

Are parent borrowers and graduate student loans eligible?

Yes. While some expected the debt relief to be limited to undergraduate debt, the final plan includes parents who took on PLUS loans to help pay for a child's education, as well as loans taken out for graduate programs.

For parent loans, the additional forgiveness tied to Pell Grant recipients is attached to the student. So if a student received a Pell Grant and borrowed student loans, they would be eligible for up to $20,000. Their parent would be eligible for an additional $10,000, for a total maximum of $30,000 in forgiveness (assuming they meet the income cutoffs).

What do I need to do to get forgiveness?

At the moment, there's not much borrowers can do, other than make sure their contact information is up to date with their loan servicer and sign up for updates from the department here.

Eventually, though, the majority of borrowers will need to opt in to student loan forgiveness, so to speak. For that, there will be an application available in early October, administration said in a press briefing on Friday. Once submitted, the process will take between 4 and 6 weeks, so the administration is recommending borrowers apply by Nov. 15 so that, in theory, their loans can be forgiven before payments resume next year.

If the Education Department has income data on file for you — if, for example, you’ve recently submitted paperwork to re-certify for income-driven repayment — then you may be eligible for automatic forgiveness if you meet the other eligibility requirements. The department says there are roughly 8 million borrowers in this group.

Despite the administration's prediction that many borrowers could receive forgiveness by the end of the year, experts warn this will be a drawn-out process that will likely be challenged in court, so borrowers shouldn’t expect to see their accounts updated any time soon.

For more information, see the latest from the Education Department here.

Have questions about how student loan forgiveness will work? Email us at college@money.com.