The U.S. Education Department (ED) has released new details on the Biden administration’s plan to offer targeted relief to millions of student borrowers, including a one-time student loan cancellation of up to $20,000 for borrowers who received Pell grants and up to $10,000 for other borrowers.
It is in part a response to the questions from students, borrowers and institutions about the specifics of the loan relief program, including eligibility, timeline and the application process. Over the past few weeks, ED hosted a series of briefings with institutions and advocates to answer questions about the student debt cancellation plan. Based on those conversations and other feedback, ED has a new set of frequently asked questions (FAQs) available on its Office of Federal Student Aid (FSA) website.
Institutional responsibility
Notably, institutions have no direct role in the one-time student debt relief process. Borrowers will submit applications for debt cancellation directly to ED; the department will then verify aid receipt and income, and loan servicers are responsible for communicating with borrowers and processing loan relief. Additionally, borrowers should be able to access all the information they need on aid receipt, loan balances and loan types directly on the FSA website.
However, institutions can expect borrowers, including current students, to have questions about the program in the coming months. For that reason, campus officials should be aware of resources available to borrowers as they navigate the process.
Application process and timeline
While some borrowers will be independently verified and eligible for automatic loan cancellation, ED is urging all borrowers to prepare to complete a loan relief application in early October. Borrowers will need their FSA ID to submit their application, so they are encouraged to log on to StudentAid.gov to ensure that they have an active account and that their contact information is up to date with both FSA and with their loan servicer. ED will send borrowers an email when the application becomes available.
Borrowers will have until December 31, 2023 (exactly one year after repayment resumes) to submit their applications. To receive relief before the repayment pause lifts, borrowers are encouraged to submit their applications by November 15.
Loan servicers are tasked with informing borrowers when relief has been applied to their accounts.
Borrower eligibility
Borrowers are eligible for the one-time student debt relief benefit if their annual federal income was below $125,000 (individual or married, filing separately) or $250,000 (married, filing jointly or head of household) in 2021 or 2020. If a borrower has met the income threshold and received a Pell Grant in college, they are eligible for $20,000 in debt relief. If a borrower did not receive a Pell Grant in college and has met the income threshold, they are eligible for $10,000 in debt relief.
ED will automatically verify which borrowers received a Pell Grant while they were in college, so borrowers do not need to take any action to document their Pell receipt as part of the application process. Most borrowers can log on to StudentAid.gov to see if they received a Pell Grant under the “My Aid” page. This information will not be available if a borrower received a Pell Grant before 1994, but those borrowers will still receive the full benefit.
Loan eligibility
Most federal student loans with an outstanding balance as of June 30, 2022 are eligible for the one-time student debt relief program. These include undergraduate and graduate direct loans, Parent PLUS and Grad PLUS loans, consolidation loans, federally held Federal Family Education Loan (FFEL) program loans, federally held Perkins loans, and federally held loans that are currently in default. If borrowers have privately held FFEL or Perkins loans, they can receive relief by consolidating these loans into the Direct Loan program.
Borrowers will be able to see their loan types, balances and information on servicers by visiting the “My Aid” page on StudentAid.gov.
Borrowers do not have to be in repayment to receive loan relief. Those who are currently in school or in a grace period will also see their loans cancelled as long as the loan was dispersed before June 30.
Loan cancellation
Many borrowers, and most community college borrowers, will have their entire federal loan balance eliminated by the student debt relief program, but those with remaining loans will see their balances re-amortized, which may reduce monthly payments.
ED is creating a “waterfall” sequential approach to cancellation for borrowers with multiple loans. The priority for relief will be:
- ED-held loans in default
- Commercial FFEL Program loans in default
- Direct Loan Program loans and FFEL Program loans in good standing
- ED-held Perkins loans
For borrowers with multiple loans within a single loan program, the priority for relief will be:
- Apply relief to loans with the highest statutory interest rate.
- If interest rates are the same, apply to unsubsidized loans before subsidized loans.
- If interest rates and subsidy status are the same, apply to the most recent loans before older loans.
- If interest rates, subsidy status, and disbursement dates are the same, apply to the loan with the lowest combined principal and interest balance.
The Biden administration has confirmed that the one-time student loan debt relief will not be subject to federal income tax, but many students could be responsible for state or local taxes on the amount forgiven.
Looking forward ED will continue to update the FAQ page with additional information as it prepares to release the cancellation application. Borrowers are encouraged to look for emails from ED on the application process and important dates, and borrowers can sign up for text alerts with their FSA-ID.
