What the New Student Loan Forgiveness Means for You

The President’s new plan will erase $10k of student debt for millions of borrowers. To qualify, you need to have taken out a federal student loan prior to June 30, 2022, and make under $125,000 as a single filer (or $250,000 as a household).

So, do you qualify for the student loan forgiveness plan? How much of your debt will be forgiven? How will it affect your monthly payments, and what relief is there for future borrowers?

Biden’s Student Loan Forgiveness Plan

On Aug. 24, President Biden announced that the federal government would forgive $10,000 in student loan debt for qualified borrowers making under $125,000 as a single filer or $250,000 as a household.

If you received a Pell Grant, you could qualify for an extra $10,000 in forgiveness.

Biden also proposed a new income-driven repayment (IDR) plan that would lower payments on undergraduate loans from 10% or 15% of your monthly discretionary income to just 5%.

Who Exactly Qualifies?

Here are the qualifications for receiving $10,000 in student loan forgiveness:

  • You’re a single filer with an adjusted gross income of under $125,000 on either your 2020 or 2021 tax returns. For joint filers or heads of household, that number rises to $250,000.
  • You took out a federal student loan, including PLUS loans. Loans taken out by you or your parents on your behalf both qualify.
  • You took out your loan prior to June 30, 2022.

If you meet the above requirements and you received a Pell Grant, you may qualify for an additional $10,000 in relief for a total of $20,000.

Which Loan Types Qualify?

Most types of federal student loan debt qualify. That includes:

  • Direct loans (subsidized and unsubsidized)
  • Direct PLUS loans, including Grad Plus and Parent Plus loans
  • Direct consolidation loans
  • Some (but not all) Federal Family Education Loans

The trick with Federal Family Education Loans (FFEL) is that some are held by private companies. If your FFEL qualified for the payment pause in 2020, it may qualify for forgiveness. If it didn’t qualify for the payment pause, that’s a sign that it’s privately held and won’t immediately qualify for the $10,000.

That being said, there’s still hope. The Washington Post reports that the Biden Administration is working with private FFEL lenders to see if they can fold their borrowers into the relief program.

Will I Get the Full Amount? Or Is There a Sliding Scale?

If you meet the above qualifications, you will get the full $10,000 in forgiveness ($20,000 for a Pell Grant).

There is no sliding scale based on income or anything like that.

What Steps Do I Have to Take? Or Is it Automatic?

It depends. If the Department of Education already has your income information from 2020 and/or 2021, you’ll automatically qualify. According to the Biden administration, they already have income information from 8 million out of 43 million qualified relief candidates.

If you qualify but you’re not sure if the DoE has your income information, you’ll soon be able to fill out a form that certifies your qualification.

The form is scheduled to release sometime between now and Dec. 31, 2022, when the repayment freeze expires. You can subscribe here for Department of Education updates — be sure to check the first box for Federal Student Loan Borrower Updates.

You’ll also want to double-check that your loan servicer has your latest contact and address information. If you’re not sure who your loan servicer is, check here on the DoE’s official page.

When Is the Forgiveness Scheduled to Take Effect?

Details are forthcoming on exactly when the $10,000 or $20,000 in forgiveness would take effect.

In theory, the forgiveness amount would trigger well before the repayment freeze expires on Dec. 31. This would give loan servicers time to process fully paid loans and reshuffle payment plans for borrowers with more than $10,000 in debt outstanding.

What About the Updates to the Income-Driven Repayment (IDR) Plan?

If you’re on an IDR plan like PAYE, REPAYE, ICR, etc., you’re probably used to paying 10%, 15%, or even 20% of your discretionary monthly income towards your student loan balance.

While capping your required payments is helpful, even 10% can be pretty steep for low-income borrowers struggling to make ends meet as the cost of living rises.

That’s why the current administration has proposed a new rule that would cap monthly payments at 5% of your monthly discretionary income versus 10% or higher. The new rule would also raise the amount considered “non-discretionary” and forgive balances after 10 years of payments instead of 20.

The rule is expected to take effect in summer 2023.

Will I Have to Pay Taxes on My Student Loan Forgiveness?

Nope! Congress eliminated taxes on loan forgiveness through 2025.

Will the Student Loan Repayment Freeze Be Extended?

Yep! The student loan repayment freeze that began in 2020 was originally slated to expire on Aug. 31, 2022. It’s now been extended to Dec. 31, 2022.

Should I Hold Off on Refinancing Until Forgiveness Kicks In?

Yes, definitely! Generally speaking, refinancing your federal student loans with a private lender only makes sense when you qualify for a much lower interest rate than you’re currently paying, as is often the case when your credit score rises.

But private loans often lack some or all of the protections of federal loans, such as payment freezes and income-driven repayment plans. That’s why refinancing federal student loans with a private lender should be a careful, calculated decision.

And even if you qualify for a lower interest rate — say, 3% versus 7% — that’s not enough to offset $10,000 in instant forgiveness. Wait for the Department of Education to knock $10k off your principal, and then reassess your options.

I Paid Off My Loans During the Freeze. Is There Any Kind of Relief for Me?

Actually, yes!

If you:

  • Meet the qualifications for loan forgiveness, and
  • Made student loan payments after March 13, 2020,

you’re actually eligible for a refund! The Department of Education advises that you contact your loan servicer to request your refund and get the ball rolling.


Interested in Financial Education? Here are other articles we think you’ll like.