President Joe Biden announced Wednesday that the administration would cancel $10,000 in federal student loans for most borrowers, fulfilling his campaign promise to bring student loan debt relief to millions of Americans.
The plan is limited to borrowers making less than $125,000 per year for individuals and less than $250,000 for married couples or heads of households. Pell Grant recipients who meet the income threshold are also included in the plan and can receive up to $20,000 in relief. Private loan holders are not eligible for relief.
Although the announcement noted that an application for borrowers to apply for the program would be available "in the coming weeks," there's been little information on how borrowers can determine if they're eligible for the debt relief and what the application will entail.
Nearly 8 million borrowers for whom the Department of Education has income information available, however, should be eligible to receive debt relief automatically, according to the announcement.
Until the department provides more information on what borrowers need to do to receive relief, here's what you need to know and how you can prepare:
- Verify that you meet the income threshold by checking your 2020 and 2021 tax returns, as experts say that the administration will likely estimate your annual income from either, or both, of those forms.
- Check if you are a Pell Grant recipient and qualify for additional relief by logging into your Free Application for Federal Student Aid (FAFSA) account with your FSA ID. The portal should have your student aid report (SAR), which details the different financial aid awards you have received, including any Pell Grants. This information is also included in the financial aid award letter you received from the school you attended.
- Sign up for the department's "federal student loan borrower updates" emails to be notified when the application is live.
- Check your communication preferences on your FAFSA and loan servicer accounts so you know where, and how, these agencies will contact you about receiving debt relief.
- Have documentation of the outstanding balance on your loans and copies of your recent tax returns prepared in case you need to prove your eligibility.
Implementing a broad student loan forgiveness plan is going to be a "slow process" that requires "a lot of communication between the Department of Education and loan servicers," Michelle Dimino, a senior education policy leader at public policy group Third Way, tells CNBC Make It. "[Most] borrowers won't automatically see their balances be cleared or reduced … we're all sitting tight for more information."
The administration's broader debt forgiveness plan is "incredibly problematic and confusing to borrowers" as it stands now, Scott Buchanan, executive director of the Student Loan Servicing Alliance, says, but he's optimistic that the details of the application process get "ironed out" and become "much clearer" in the coming weeks.
"Education is a ticket to a better life. … but over time that ticket has become too expensive for too many Americans," Biden said during a speech from the White House hours after the announcement. "All this means that an entire generation is now saddled with unsustainable debt in exchange for an attempt at least at a college degree. The burden is so heavy that even if you graduate you may not have access to the middle-class life that the college degree once provided."