President Joe Biden announced in late August that federal student loan borrowers can now apply for up to $20,000 in debt forgiveness. The administration officially launched the application on October 17 after a brief “beta period” during which its team assessed whether tweaks were needed. However, not every student loan borrower is eligible for this debt relief initiative.

There are two main qualifications for federal student loan forgiveness. Firstly, only federally held student loans qualify—private student loans are not included. Secondly, high-income borrowers typically don’t receive any debt forgiven. For this initiative, if you’re an individual borrower making less than $125,000 annually or a married couple earning less than $250,000 annually, up to $10,000 of your federal student loan debt could be forgiven.

If a borrower meets the qualifications and has also received a Pell grant while enrolled in college, they are eligible for up to $20,000 of debt forgiveness. Millions of low-income students receive these grants each year based on their family’s size and income, as well as the cost of tuition at their chosen college. Borrowers who fall into this category are more likely to default on their student loans than those who are not.

Are All Federal Loans Eligible?

Federal Direct Loans are eligible for relief, including subsidized loans, unsubsidized loans, parent PLUS loans, and graduate PLUS loans. However, federal student Loans that were guaranteed by the government but held by private lenders are not usually eligible unless the borrower applied to consolidate those lent into a Direct Loan on or before September 29.

The Department of Education ruled that these privately held loans, many of which were made under the former Federal Family Education Loan program and Federal Perkins Loan program, would not be eligible for the one-time forgiveness action.

What Year Is a Borrower’s Eligibility Based on?

A borrower’s eligibility for this student debt relief plan is based on their adjusted gross income from either tax year 2020 or 2021. Adjusted gross income (AGI) is lower than your total wages because it takes into account deductions and adjustments, such as contributions to a 401(k) retirement plan. A taxpayer’s AGI can be found on line 11 of IRS Form 1040.

Do You Have to Pay Taxes on The Canceled Debt?

Last year, the American Rescue Plan Act was passed by Congress, and it included a provision that protects borrowers from having to pay federal income tax on forgiven student loan debt. However, several states might tax the amount of forgiven debt if state legislative or administrative changes aren’t made before the discharge, as stated by the Tax Policy Center. The resulting tax liability could cost hundreds of dollars depending on which state you reside in.

Are Current Students Eligible for Forgiveness?

Yes, depending on your current circumstances, some students may be eligible. For example, if you filed the Free Application for Federal Student Aid (FAFSA) as an independent individual, then they will base your eligibility on your household income from 2020 or 2021. On the other hand, if you’re enrolled as a dependent student (usually those under 24 years old), they will use your parent’s information to assess your eligibility.

Are Parent PLUS Loans Eligible?

If you meet the income eligibility threshold, then yes, you may be eligible for loan forgiveness. A parent borrower with federal Parent PLUS loans for multiple children is still only eligible for up to $20,000 of loan forgiveness. If a parent is a Pell Grant recipient, he or she might be eligible for up to $20,000 in student debt forgiveness. If the child is the only one that received a Pell grant, then the parent is eligible for up to $10,000 in forgiveness.

How Do You Check if You Ever Received a Pell Grant?

If you’re curious about whether or not you received a Pell grant during your time in college, most borrowers can simply log onto Studentaid.gov to find out. Your account dashboard will show information regarding any grants given to you while enrolled, as well as how much debt is owed and what kind of loans were taken out.

Although Pell grant information isn’t available online for borrowers who received the grant before 1994, these individuals are still eligible for $20,000 in student loan forgiveness. So long as borrowers receive at least one Pell grant at some point, they meet the requirements for this program.

Are Defaulted Loans Eligible for This Forgiveness Program?

Defaulted federal student loans are indeed eligible for this debt relief program. Suppose you have a balance remaining on your defaulted student loan payments after the cancellation is applied. In that case, you will be given a chance to get out of default when payments resume in January 2023 as part of the Department of Education’s “Fresh Start” initiative.