The Department of Education (DoE) has now provided guidelines and the beta application/website for the one-time Federal Student Loan Debt Relief program. You can see the application, eligibility criteria and how to check debt relief status in the sections below
It is recommended that applications be done via the Federal Student Aid website. A paper application will be available later in the year. All applications must be submitted by December 31st, 2023.
System and Application Issues
The Department of Education has confirmed that the application website is live though will start with a beta launch to iron out issues. This means early applicants could experience downtime and may have to wait to apply until the application is back up.
The full production application will be available to all from late October 2022 and open until the end of next year (Dec 2023). So don’t stress if you cannot apply early, you will have a chance later in the year.
Note that your student aid account won’t show the status of your application at this early stage (future improvement). But you will get an email confirmation after submitting your application.
What if the DoE needs more information?
After you apply, the DoE may need more information to process your request to confirm your eligibility. They will contact you via mail for more information. Be very careful of scammers trying to get private or sensitive information from you around this.
If the DoE has proof of income or other documentation, it must be submitted by March 31, 2024. You will be notified (by your loan servicers) once your student debt relief has been processed.
If you don’t hear anything from the DoE or your servicer, then no further action is needed. Wait a few weeks for processing to be complete, before calling (your servicer) to ask for the status of your application. See sections below on how to call or identify your servicer.
When Will I see the Relief applied?
Generally speaking if your application is accepted and successfully processed, you should see your loan balance reduced by the approved relief amount within 6 to 8 weeks.
Your loan servicer(s) is the party that applies the approved debt relief amount directly to your account. You will be notified in your account and via mail once applied and if your loans are paid in full or have an outstanding balance, and revised monthly payment.
For any voluntary payments during the COVID approved payment pause (from March 13, 2020, through Dec. 31, 2022) you will automatically get a refund payment for the amount you paid during the payment pause – up to the remaining amount of your eligible debt relief. This ensures people who made payments are not penalized.
The income threshold table and diagram below provide a summary of who will be eligible to receive debt relief. You can see the detailed criteria when applying for the program.
Note: You need to meet the income criteria for either 2020 or 2021, but you don’t need to meet it for both years.
|Tax Filing Status||2020 or 2021 Income (AGI) to Qualify for Program|
|Did not file taxes||Made less than the required income to file federal taxes|
|Married, filed your taxes separately||Under $125,000|
|Married, filed your taxes jointly||Under $250,000|
|Head of household||Under $250,000|
|Qualifying widow(er)||Under $250,000|
Federal Student Loan Debt Relief Program Overview
After months of deliberation, the Biden administration has announced plans to forgive or cancel up to $20,000 in federal student debt. This will eliminate or significantly reduce student debt payments for millions of qualifying Americans.
The student debt forgiveness program outlined by the administration has the following main criteria and qualification thresholds:
- Cancel up to $10,000 in federal student loan debt for borrowers making under $125,000/$250,000 (single/married filers). Each spouse can each cancel up to $10,000 of debt.
- Those low-income students who received federal Pell Grants and currently make less than $125,000 a year would be eligible for total debt forgiveness of up to $20,000.
- The forgiveness applies to students with federal loans from both undergraduate and graduate programs, as well as those under Parent Plus loans. The debt relief applies only to loan balances you had before June 30, 2022. Any loans after this date will not benefit from this program.
- Student loan payments pause extended through to December 31st, 2022, from the existing August 31st deadline.
- Cap undergraduate loan repayments at 5% or disposable monthly income, versus current 10% cap.
Preparing to Apply for Student Loan relief?
Ahead of the program go-live (see sections above), the following actions should be done to ensure your application is ready to go.
- File a current tax return. You can efile for free or use leading providers like TurboTax to do so. Your latest tax returns will likely be used to verify income levels, required to qualify for the forgiveness program. So if you haven’t already filed a return for this, get to it (will be free for most qualifying folks).
- Gather, review and understand your loan documents. You may have not looked at these for a while, but you will need to ensure they qualify for relief. If you don’t have the origination documents, review your latest statements and/or call your loan servicer. Also double-check your information at the studentaid.gov website.
There is a very high chance that when the program is live the DoE systems and processes will suffer many human and technical/system glitches as millions of borrowers try and submit applications online. So you will need to be patient and monitor the latest updates.
You will have till the end of 2023 to apply for this debt relief, so don’t stress if you cannot immediately submit your application.
What is the cost of this program?
According to various independent estimates this program will cost more than $300 billion over 10 years. This is a fraction of the ~$1.7 trillion in outstanding student loans for over 42 million Americans.
Today the average student loan balance is over $30,000, up nearly threefold from the 1980’s, thanks to rapidly rising college costs and growth in further/graduate education programs.
Under the Biden student debt forgiveness program, nearly 10 million borrowers could see their entire student loan balance wiped out completely.
Given the actions under the plan are being done via a Presidential executive order using existing precedents and DoE authority, it is expected that Republicans will challenge the legality of this program. So it may take a while for the final program application and funding to become available.
How will this student debt forgiveness be applied (and tax treatment)?
While debt forgiveness is often treated as taxable income, the total amount of the canceled student debt will be federally tax exempt per the ARPA bill (Section 9675), between 2021 and until the end of 2025.
To be federally tax free, the loans must have been made, insured or guaranteed by the federal government, including federal agencies (e.g DoE), state governments, colleges and universities, and private education loan lenders.
This means that any student debt relief will not be added as income in your federal 1040 filing for the 2022 to 2025 tax years. This does not preclude this income for counting towards state taxes, if they do not follow federal guidelines on student loan forgiveness.
Most leading tax software packages will be updated to account for this once final guidelines under this program are provided.
While the approved debt relief won’t be federally taxable by the IRS, some states may still be taxing this debt relief, so check with your state of residence for the planned tax treatment of this debt relief.
Dependents and those with fully paid or less than $10K of debt
Also for those with less than $10,000 of student loan debt, only the outstanding balance can be cancelled. You will not get a refund check for the difference between your outstanding debt and maximum $10,000 cancellation amount.
Current students can also claim student debt forgiveness under the program, but will have to use their parents/guardians income levels to determine eligibility if claimed as a dependent.
The above debt forgiveness won’t apply to student loan balances that have already been paid off.
Is the President sending the wrong message with more loan bailouts?
As expected with a program this side and given our current state of partisan politics, there is a lot of criticism around the cost of this student debt forgiveness program.
The main argument against this program is around the primary benefit or bailout going to college educated Americans, versus blue collar non-college tax payer.
It also provides no benefit for those middle-class Americans who didn’t use student loans to pay for college, and had to work or save hard to complete their university programs.
There are also concerns that this forgiveness could be inflationary as it frees up money used for those making loan servicing payments.
These loan and interest repayment savings would essentially act as another stimulus payment and potentially stoke inflation given the millions of lower-income Americans who stand to benefit from this program.
However, proponents argue that this stimulus is already baked into inflation given the long pause on student loan repayments due to various pandemic relief programs over the last two years.
What is a Pell Grant?
This grant is provided by the US Department of Education (DoE) to eligible lower-income students based on financial need. The Pell grant can be used to pay for college costs, including tuition, fees, room and board, and other educational expenses.
Pell Grant recipient graduates generally have more in debt than other graduates and are from lower income groups, hence the larger benefit.
The DoE estimates that 27 million borrowers will qualify under the Pell Grant relief program and get up to $20,000 in loan forgiveness.
Contacting or Identifying Your Loan Servicer(s)
To reach your servicer, you should check your latest billing statement or via the Who’s My Student Loan Servicer? page on the official Federal Student Aid/DoE website. Create a new account if you don’t have one.
You also can call us at 1-800-4-FED-AID to get connected with one or more of your servicers.