What You Need to Know About Student Loan Cancellation

This week, President Joe Biden announced that his administration will cancel $10,000 of federal students for low-to-middle-income borrowers and up to $20,000 for Pell grant recipients. Naturally, borrowers (including Financial Trainers and TFG clients) are anxious to find out whether they will qualify for the cancellation and what they need to do to get it.

Here is what we know:

Who will be eligible for student loan cancellation?

Federal student loan borrowers who earn less than $125,000 or $250,000 for couples will qualify for up to $10,000 in student loan cancellation. Pell grant recipients (lower-income students) are eligible for up to $20,000 in federal student loan cancellation as long as their income is below the threshold. Pell grant recipients who exceed the income limits will still be eligible for $10,000 of cancellation.

How do I know if my loans will qualify?

Direct federal student loans will qualify; unfortunately, private student loans will not. If you have not been required to make payments on your student loans during the pandemic, that’s a pretty clear sign that your loans will be eligible for cancellation. Parent Plus loans (federal loans taken out by parents for their child’s education) also qualify as long as the income limits are satisfied.

The jury is still out on some other types of federally-backed but privately-held loans including Family Federal Education Loans (FFEL) and Perkins loans. The Washington Post reported that FFEL loans managed by the Department of Education will qualify but that the department is still working to figure out whether FFEL loans held by private companies will be eligible. The New York Times reported that FFEL loans will not qualify, so, unfortunately, the answer is just not clear yet. It’s also unclear whether Perkins loans, which are issued by colleges or private companies, will qualify.

To verify if some or all of your student loans are federal, create an account with StudentAid.gov. The “My Aid” section will show a record of all of your federal student loans. It will also show whether you received any Pell grants. 

What action do I need to take?

We are still waiting on details about the application process, but the Biden administration indicated that borrowers who already have their income information on file with their loan servicer or StudentAid.gov will receive the cancellation automatically if they qualify. Borrowers who have applied for an income-driven repayment plan likely already have their income information on file. The administration has also committed to making the application available before student loan payments resume in January 2023 for borrowers who have not submitted income details.

Everyone with federal student loans should make sure that their address and contact information is up-to-date with their student loan servicer and StudentAid.gov. 

Final Thoughts

While the news of student loan cancellation is exciting, the wait to find out whether your loans qualify can be anxiety-producing. In the meantime, pay attention to emails from your loan servicer and subscribe to the Department of Education’s federal student loan borrower updates to ensure you’ll be notified quickly about any new information. 

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