Biden’s Student Loan Forgiveness Plan: What to Know


President Biden’s student-loan plan will reduce or wipe out the debt of millions of borrowers. 

The plan eliminates up to $10,000 in federal-loan debt for individual borrowers with annual incomes of under $125,000 or couples who earn less than $250,000. Many borrowers will be eligible for total forgiveness up to $20,000 if they received Pell Grants, a form of federal financial aid awarded to students from low-income households. 

“We’re in unprecedented territory,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance. “This has never been done before.” 

The plan is expected to benefit the majority of the more than 43 million people in the U.S. who hold a total of $1.6 trillion in student-loan debt. 

In addition to the loan forgiveness, the president will also be extending the pandemic-era student-loan pause on payments and interest through the end of the year. The measure began in March 2020 and has been repeatedly extended since. The Federal Reserve Bank of New York estimates the pause spared borrowers nearly $200 billion in payments during this period.

President Biden said Wednesday that his administration will forgive up to $20,000 in federal student loan debt for tens of millions of Americans. Independent estimates suggest the plan will cost more than $300 billion over 10 years. Photo: Evan Vucci/AP

President Biden’s announcement brings a host of questions for borrowers and servicers alike: Who qualifies for forgiveness and for how much? Here are answers to some of the key questions based on the announcement. 

Who is eligible for student-loan forgiveness?

Borrowers with federal student-loan debt are eligible for up to $10,000 in relief if they earn less than $125,000 a year, or under $250,000 a year for couples.

People who received federal Pell Grants in college will also be eligible for up to $20,000 in forgiveness. Around 6 in 10 borrowers with any federal loans also received a Pell Grant, according to the White House, and Pell Grant recipient graduates hold about $4,500 more in debt than other graduates, according to a 2020 analysis of federal data by the Institute for College Access and Success, an advocacy group.

Most student loan borrowers owe less than $25,000 on their loans as of May 2022, according to the Federal Reserve.

When will forgiveness take effect?

The timing remains uncertain, but the Education Department has promised more details in the weeks ahead, at minimum before student loan payments resume in January 2023. 

Do I need to take action to receive debt relief?

Not yet. Wait until you receive a notification from your loan servicer, Mr. Buchanan said. 

Beware of any friendly-sounding phone calls or suspicious-looking emails from addresses you don’t recognize. 

“It’s a very complicated process and it’s going to take months to effectuate,” he said. “Don’t do anything until you see something happen to your account.” 

Meanwhile, double-check the information you’ve already shared with your loan servicer and the studentaid.gov website. If you’ve recently moved or changed any contact information, you’re going to want to make sure that they have the most up-to-date addresses, said Mark Kantrowitz, a student loan expert. 

What if I have private student loans?

Only federal debt is eligible. 

What if the amount I owe is under $10,000?

If you owe less than $10,000 on your loan (or $20,000 for those who received Pell grants), then congratulations—you’ll now be student debt-free. President Biden’s plan will wipe out the debt of around 15 million borrowers.

Is the pause on student-loan payments extended?

Before today’s announcement, loan payments were expected to resume on Aug. 31. Now, borrowers will see the pause extended through the end of the year. Interest accrual and collections remain on pause as well.

Are Parent Plus loans eligible?

Yes. An individual student is limited in how much money they can take out in federal loans, but through the Parent Plus and Grad Plus Programs, families can borrow the total cost of attendance, including room and board and other expenses. This forgiveness applies to federal loans for both undergraduate and graduate programs, as well as to Parent Plus loans, White House officials said. 

Is my debt forgiveness tax-exempt?

Debt forgiveness is often treated as income on taxes. But fortunately for borrowers, this canceled student debt is federally tax-exempt, as seen in other federal student debt forgiveness programs.

What if I have already paid off my loans?

As of the end of last year, fewer than 1.2% of borrowers continued making payments on their student loans, Mr. Kantrowitz said. But some of the borrowers took advantage of the two-plus years of optional, interest-free payments to wipe out their debt entirely. 

This measure won’t apply to balances that have already been paid off.

Write to Julia Carpenter at julia.carpenter@wsj.com

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