Application and deadline: New details on student loan forgiveness

INDIANAPOLIS — Federal student loan borrowers will receive up to $20,000 in loan forgiveness if they meet certain income requirements.

To be eligible, your annual federal income needs to be below $125,000 (individual or married, filing separately) or $250,000 (married, filing jointly or head of household) in 2021 or 2020. 

Eligible non-Pell Grant recipients will receive up to $10,000 in relief, and eligible Pell Grant recipients will receive up to $20,000 in relief.

To find out what types of loans you have, log on to StudentAid.gov and select “My Aid” in the dropdown menu under your name. Then, head to "Loan Breakdown."

Application

If you qualify for automatic forgiveness, the government will send you an email. That means no application is required.

However, most people will need to apply, and the application will be out in early October.

You will have until December 2023, or more than a year, to fill it out.

RELATED: You won’t have to pay federal taxes on student debt relief, but states could tax it as income

Taxes

As for taxes, the government confirmed the one-time relief will not be taxed at the federal level.

But at the state level, it depends on where you live.

In Indiana, for example, residents will owe both state and county taxes.

RELATED: Hoosiers will be taxed hundreds of dollars on student loan forgiveness

How will relief be applied?

For borrowers with multiple loans, the government said the forgiveness will be applied in this order:

• Defaulted ED-held loans
• Defaulted commercial FFEL Program loans
• Non-defaulted Direct Loan Program loans and FFEL Program loans held by ED
• Perkins Loans held by ED

If borrows have multiple loans in a program type (e.g., multiple Direct Loan Program loans), this will be the order:

• Apply relief to loans with highest statutory interest rate.
• If interest rates are the same, apply to unsubsidized loans prior to subsidized loans.
• If interest rate and subsidy status are the same, apply to the most recent loan.
• If interest rate, subsidy status, and disbursement date are the same, apply to the loan with the lowest combined principal and interest balance.