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For the most up-to-date information on federal student loan forgiveness, go to the U.S. Department of Education's Federal Student Aid website.
On August 24, President Biden announced plans to forgive up to $20,000 in student loan debt for eligible federal loan borrowers. The president also announced another extension of the student loan payment moratorium, as well as a proposal for a new income-driven repayment plan.
In November, the Department of Education paused accepting applications for student loan debt forgiveness as it sought to overturn court orders blocking the program.
How the Biden Administration's Student Loan Forgiveness Plan Works
President Biden has long supported $10,000 in widespread student loan forgiveness, despite calls from members of his own party to wipe out $50,000 or more across the board.
After months of uncertainty, the president announced the basic structure of his student loan forgiveness plan. Here's what we know so far.
Federal student loan forgiveness is only available to borrowers, including students and parents, who have loans that are held by the federal government, which account for the majority of federal student loans (some older programs offered loans that are held by private lenders).
An easy way to tell whether your loans are eligible for forgiveness under the new Biden plan is if your loans are part of the payment and interest moratorium that was created with the CARES Act in March 2020. Loans obtained after June 30, 2022, are not eligible for forgiveness.
The Biden administration has also established that only low-to-moderate-income earners are eligible for forgiveness. More specifically, your income must be under $125,000 if you're a single taxpayer or $250,000 if you're married or file your taxes as a head of household.
The Education Department will use your adjusted gross income from your 2020 or 2021 tax return to determine income eligibility.
How Much Can I Get Forgiven?
The widespread forgiveness plan offers up to $20,000 in forgiveness, depending on how much debt you have and whether or not you've received a federal Pell Grant.
If you received a Pell Grant while you were in school, you can get up to $20,000 in forgiveness. However, because Pell Grants are only available to undergraduate students with financial need, graduate student loans are not eligible for the higher maximum.
If you haven't received a Pell Grant, the maximum amount of forgiveness that you can receive is $10,000.
Do I Have to Pay Taxes?
In some cases, having a debt canceled or forgiven could result in a tax bill, as the discharged amount could be treated as income. Forgiveness under this plan will not be considered income for federal tax purposes, but some states may tax forgiveness amounts. Check with your tax preparer or state tax board to get an update before tax time.
How Do I Find Out More?
There are still some aspects of the forgiveness plan that remain unclear. If you have questions about your eligibility or you want to know if there are updates to the plan, you can visit the Federal Student Aid website or sign up for email updates on federal student loans.
Student Loan Payment Pause and New Income-Driven Repayment Proposal
In the same speech, the president also announced an extension of the student loan provision of the CARES Act that cuts federal student loan payments to $0 and interest rates to 0%. The provision also stopped all collection efforts on defaulted federal loans.
The moratorium, which was set to expire on August 31, will now be in effect until sometime in 2023. The exact date is currently unknown, as the administration is seeking to overturn court orders blocking the program.
President Biden also announced a proposal for a new income-driven repayment plan that would provide even more relief to low-to-moderate-income earners. Here's a quick summary of the details:
- Borrowers would only need to pay 5% or less of their discretionary income, half the lowest amount with existing plans.
- Borrowers earning under 225% of the federal poverty level, which is based on your state of residence and family size, would not need to make monthly payments.
- The Education Department would forgive remaining balances after 10 years of payments for borrowers with balances of $12,000 or less.
- The federal government would pay any interest not covered by the borrower's payments so that no borrower's loan balance would increase, as is often the case with current income-driven repayment plans.
There are currently no details on whether the Education Department will implement this rule or what that process will look like.
How Student Loan Forgiveness Can Affect Your Credit
If you still have a loan balance after receiving the maximum forgiveness that you qualify for, you likely won't see any impact on your credit score. However, you may see a change if the forgiveness pays off one or more of your loans.
Depending on the makeup of your credit file, paying off a loan can have a positive or negative impact on your credit. However, this impact is generally temporary in nature. If you had negative items associated with the loan, such as missed payments, those will remain on your credit reports for seven years from the first missed payment.