Who qualifies for Biden’s plan to cancel $10,000 in student debt?

After more than a year of debates, protests, meetings and deliberations, President Joe Biden is fulfilling a campaign promise to cancel some of the federal student debt held by millions of Americans.

Under the plan, borrowers can qualify for up to $10,000 in student loan forgiveness, and recipients of Pell Grants are eligible for an additional $10,000 in forgiveness. Only borrowers earning under $125,000 per year - or $250,000 per year, for a married couple filing taxes jointly - qualify. The Biden administration also announced that it is extending the current moratorium on payments until Dec. 31 and implementing a new cap on the maximum monthly payments of undergraduate borrowers, among other changes.

The White House estimates roughly 43 million federal student loan borrowers are eligible for forgiveness, and about 20 million could have their debt completely wiped out, according to a senior administration official who briefed reporters on Wednesday. The policy will deliver the single largest discharge of education debt on record.

“This is going to change the lives of a lot of people,” said Mark Huelsman, director of policy and advocacy director of the Hope Center, a higher education think tank. “When we’re talking about full cancellation for 20 million people, this is unprecedented.”

Still, the announcement disappointed some activists who had fought for a more generous policy. And it angered other Democrats and conservatives who say it is fiscally irresponsible and unfair to people who never borrowed, as well as those who have already repaid their student loans.

Here is what you need to know about the cancellation plan.

How do I get student loans forgiven?

The Biden administration said Wednesday that most borrowers will be required to fill out a form with the Education Department to certify that they qualify under the new income guidelines. Education officials are expected to provide more information in the coming weeks about where borrowers can fill out the application.

Administration officials also estimate that roughly 8 million borrowers have already provided their income to the Education Department and may not need to take any additional steps to see their debt reduced.

Who qualifies for student loan forgiveness?

The vast majority of Americans with federal student debt are below the income threshold and would qualify for Biden’s plan.

Still, implementation challenges could mean many people who are eligible can’t take advantage of the policy. Some advocates worried that the Education Department forms will provide a barrier for forgiveness for lower-income borrowers, because many borrowers may not go through the process of applying.

Will private loans be forgiven?

No, education loans originated and held by private lenders are ineligible for cancellation.

Are graduate student loans eligible for forgiveness?

Yes. Under the new policy, graduate student loans are eligible for up to $10,000 in debt forgiveness. They are not eligible for the additional $10,000 offered to Pell Grant recipients. Roughly 1.6 million borrowers have Grad Plus loans subsidized by the federal government, but millions of other graduate students have private unsubsidized loans, according to Huelsman.

Are Parent Plus loans eligible?

Yes. Parent Plus loans - federal loans taken out by parents to pay for their children’s education - are eligible for the $10,000 in cancellation under the White House plan, subject to the income thresholds. Roughly 3.6 million borrowers hold Parent Plus loans, according to Huelsman.

Are current students eligible?

Current students will qualify for loan forgiveness if their parents’ income is below the cap required to qualify, the senior administration official told reporters Wednesday. Loans must have been originated before July 1 to qualify.

Debt in the Federal Family Education Loan (FFEL) Program managed by the Education Department will qualify for cancellation.That distinction is important because some FFEL loans are held by private companies, the same loans that were largely excluded from the suspension of federal student loan payments for the past two years. The department said it is working to determine whether borrowers with those commercially held FFEL loans will be eligible for relief.

Does the plan cap what undergraduate borrowers have to pay?

The Biden administration on Wednesday proposed creating a new repayment plan tied to borrowers’ earnings, capping monthly payments for undergraduate loans to 5% of a person’s discretionary income instead of 10%.

It also would raise the amount of income that is considered non-discretionary and forgive balances after 10 years of payments, instead of 20 years. The new rule probably will take effect next summer.

This policy significantly increases the cost of Biden’s reforms, but it will also provide long-term relief to future borrowers.

Can I take out loans now and have them forgiven under this policy?

No. Loans must have been originated before July 1 to qualify.

How will the government determine my income for qualifying for forgiveness?

Borrowers will qualify for loan forgiveness if they earned less than the income cap in either 2020 or 2021, according to the White House official.

I owe more than $10,000. When do my payments restart?

Biden said he will extend a pause on federal loan payments until Dec. 31 - which extends the moratorium beyond the midterm elections. That could give the Education Department enough time to recalculate borrowers’ monthly payments based on their new lower balances.

More than 41 million federal student loan borrowers have not had to make payments or accrued interest on their debt since March 2020, under the pause initially implemented by President Donald Trump at the start of the pandemic and then continued by Biden.

Will I have to pay taxes on forgiven student debt?

No. The $1.9 trillion stimulus package Biden signed into law last year temporarily eliminated the tax burden many student loan borrowers would face if any portion of their debt was discharged. The tax relief is good only through January 2026, but that’s long enough to cover borrowers benefiting from this one-time cancellation.

Will this make inflation worse?

Critics and proponents of the policy have debated the extent to which wiping out significant amounts of student debt will exacerbate inflation, which the president has vowed to curb amid the biggest price spikes in decades.

The Committee for a Responsible Federal Budget, a D.C.-based think tank opposed to cancellation, previously estimated that an additional one-year pause in student debt payments would mean raising inflation by 0.2 percentage points, and canceling $10,000 per borrower for households with under $300,000 per year in income would raise it by 0.15 percentage points.

Canceling $10,000 in student debt while restarting payments could translate into roughly $75 in an additional one-time cost for other American households, according to Jason Furman, who served as a senior economist in the Obama administration. These estimates did not account for the additional debt forgiveness for Pell Grant recipients and the new cap on income repayments.

Other analysts have disputed these findings. The Roosevelt Institute, a left-leaning think tank, found that ending the payment moratorium and canceling $10,000 in debt would reduce inflation, because requiring borrowers to resume payments would take money out of the economy. Dean Baker, a liberal economist and outside adviser to the White House, also disputed the Committee for a Responsible Federal Budget’s findings as too large.

How much will student loan forgiveness cost?

Canceling substantial amounts of student debt will reduce the amount of money that comes into the federal government, increasing America’s already large federal deficit.

The Committee for a Responsible Federal Budget has estimated canceling $10,000 of student debt for households earning under $300,000 per year would cost roughly $230 billion. That is roughly the price tag of the bipartisan anti-China competitiveness bill and legislation this month to expand health care for veterans. For comparison, the U.S. military budget has also increased by roughly $200 billion every year from 2015 to 2022, according to federal data.

That number, however, did not account for the larger amount being provided to Pell Grant recipients and the new cap on repayments - changes that will substantially increase the cost. Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, said these measures could drive the overall price of the White House’s actions to between $400 billion and $600 billion but cautioned that the analysis was preliminary.

Will this mostly benefit affluent Americans?

Analysts have also debated whether student debt cancellation would disproportionately benefit wealthy college graduates who do not need additional federal assistance.

The Committee for a Responsible Federal Budget estimated that roughly 70% of the benefit will go to those in the top half of the income spectrum. A similar analysis from experts at the University of Pennsylvania’s Penn Wharton Budget Model released Tuesday found that roughly three-fourths of the debt forgiven would go to people in the top 60% of the income distribution — even if capped to those earning under $125,000 per year.

But these analyses hinge on estimates of the annual income of potential beneficiaries — not their wealth. College graduates with high debt burdens often make relatively high salaries but don’t have significant assets, in part because of those loan burdens. Only 7% of student debt is held by the wealthiest 20% of Americans, while the other 93% is held by the less wealthy 80%, according to the People’s Policy Project.

The administration official briefing reporters said on Wednesday that “not a single dollar” would go to Americans in the top 5% of the income distribution.