Student Loan Forgiveness Is Here! Here’s What You Should Know


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Source: Social Squares
Source: Social Squares

If you’re one of millions of Americans staring at a pile of student loan debt wondering what you’re going to do about it, you may see a change in your student debt status soon. After campaigning heavily on student loan forgiveness and serving nearly two years into his term, President Biden officially announced a student loan forgiveness plan that will provide relief for up to 43 million borrowers, including a total debt cancellation for almost 20 million borrowers. This plan has been a long time coming, creating a political divide between those concerned with the amount of student debt in America and those with growing concerns about inflation and an impending recession. Here’s everything you need to know about the amount being forgiven, who is eligible, and when balances will be updated.


What’s going on with the student loan situation right now?

The student loan forgiveness saga began when the Trump presidency temporarily paused student loan payments and interest accrual through the CARES Act, the first COVID relief bill that passed in March 2020. Former President Trump extended the payment pause twice, and President Biden has extended the pause a total of four times, including this final extension lasting through December 31, 2022. Now that President Biden has announced a plan, there are more concrete details about what student loan cancellation looks like. Biden’s proposed student loan payment plan includes:

  • $10,000 in forgiveness for borrowers earning less than $125,000 per year or $250,000 in household income
  • $20,000 in forgiveness for borrowers who received undergraduate Pell Grants
  • Repayment of undergraduate loans can be capped at five percent of monthly income instead of 10 percent
  • No federal student loan payments until January 2023
  • No interest accumulating on loan amounts
  • No collections on loans that are in default



Will student loan forgiveness actually happen?

The short answer: yes. It’s happening now! The chances of all borrowers receiving total loan forgiveness were unlikely, but many people held out hope for partial cancellations from the U.S. government—hope that has proven to be fruitful. It was a tumultuous road to student loan forgiveness with members of Congress split over the amount that should be canceled and Congress members believing that the predominant issue is the cost of higher education as a whole. President Biden campaigned on forgiveness of $10,000, and political disputes effectively gridlocked the progress of student loan forgiveness legislation. However, since the beginning of his term, President Biden has canceled nearly $12 billion in federal student loan debt for various categories of borrowers. Now that forgiveness is extended to millions more people, there are a few things to keep in mind:


Pell Grants mean more forgiveness

Pell Grants are federal grants usually awarded to undergraduate students with significant financial needs. Under the student loan debt plan, borrowers who took out Pell Grants will receive $20,000 in debt forgiveness rather than the standard $10,000. This additional benefit keeps lower income and racially diverse borrowers in mind as it addresses the racial wealth gap and student borrower gap that disproportionately affects Black borrowers.


Federal loan repayment based on income

In addition to canceling at least $10,000 in student loan debt for each borrower, President Biden’s plan also includes an “income-driven” repayment solution that reduces payment amounts based on income. Under his plan, the minimum repayment amount for undergraduate loans will now be five percent of monthly income instead of 10 percent. For example, if your discretionary income (after taxes, housing, and food costs) is $50,000, you will only be required to pay $2,500 in student loan repayment each year ($50,000 x 5%). If your discretionary income is below $25,000, your minimum repayment amount will be $0. If you attended a four-year college, your repayment obligation will be fulfilled after 20 years, regardless of any remaining balance. If you attended a community college and have student loan debt less than $12,000, your repayment obligation will be fulfilled after 10 years.


Only federal loans can be forgiven

Not all student loans are created equal. Borrowers can take out loans through the federal government or loans offered by private lenders. Federal loans are the only ones that can be canceled or paused by the government. President Biden’s student loan forgiveness plan does not affect the amount that borrowers owe to private lenders, so those payments will continue as normal.


Retroactive credit for public servants

The Public Service Loan Forgiveness (PSLF) program is a federal program that eliminates student debt balances for people who work in government or non-profit industries for 10 years or who have made 120 total loan payments. As admitted by President Biden, the program has some flaws, including a loophole that kept U.S. military service people from qualifying as public servants. Now, those with military service will receive retroactive credit that counts toward the 10-year forgiveness period. People seeking this credit, as well as any other qualifying PSLF credit, have until October 31st, so act quickly!


Previous debt cancellations were limited

Of the $12 billion in student loan debt that President Biden has already canceled, it was reserved for certain groups of borrowers. Teachers, those who are considered public servants, borrowers whose institutions have closed, borrowers who were misled by their institutions (this is called borrower defense), and Americans with total and permanent disabilities have been cancellation beneficiaries. There are a few more cancellation categories, so click this hyperlink to see if you might qualify for any of them!


So, what should I do?

 In the coming weeks, the Department of Education will provide additional info about student debt forgiveness and roll out an application form for eligible borrowers. For those of you receiving student debt relief through President Biden’s plan, congratulations! Hopefully, this plan will lift some of the financial burden that many of us have felt in the last couple of years. That said, I am not a financial or student loan advisor, and you should always seek professional counsel before making major financial decisions. Changes are on the horizon for student loan forgiveness, and unless you’re one of the 20 million people who will see a complete debt cancellation, it’s important to keep up with your repayment obligations. Stay ready so you don’t have to get ready and check out these student loan debt resources:

  • National Consumer Law Center: The NCLC’s Student Loan Borrower Assistance site is your one-stop loan information shop. It has tools for everything from repayment to default concerns. If you need a starting point for loan repayment assistance, don’t miss this one.
  • The Student Loan Doctor LLC: Sonia Lewis happily takes on the role of the student loan doctor, leading her team as the first Black and woman-owed student loan repayment company in the U.S. She has serviced more than 20,000 clients nationwide, including graduated borrowers and current college students who need assistance with student loan strategy.
  • Student Loan Show Podcast: Hosted by student loan attorney Jay Fleischman, this podcast covers a gamut of student debt topics. There are six episodes with very digestible and informative. The host also offers a complimentary six-part email series covering collections, defaults, and repayment.
  • Destroy Your Student Loan Debt by Anthony O’Neal: A former Ramsey Personality, Anthony O’Neal is an author who has carved out space for himself as a student debt expert. Destroy Your Student Debt was published in 2020, following his critically acclaimed 2019 book Debt-Free Degree: The Step-by-Step Guide to Getting Your Kid Through College Without Student Loans.
  • The Total Money Makeover by Dave Ramsey: Financial expert Dave Ramsey published this book as an overall guide to eliminating personal debt. The book is intended to help readers develop better relationships with money by debunking “money myths” and completely transforming money habits.