Your student loan forgiveness questions, answered

In August 2022, President Joe Biden announced a plan to forgive up to $20,000 of student loans per borrower. In June 2023, the Supreme Court struck down the plan, putting a pause on the initial effort that would have wiped out all student loan debt for about 20 million borrowers and would have provided at least partial relief for 43 million.

While the Biden plan has been derailed, there are still efforts to try to extend relief to those with student loan debts. However, the uncertain status of these relief efforts leaves many questions for borrowers. Despite the uncertainty of widespread changes, some of those questions can be answered now.

What is going on with federal student loan forgiveness?

The initial plan to offer up to $20,000 of debt forgiveness for Pell grant recipients and up to $10,000 for non-Pell borrowers has been struck down by the Supreme Court. In addition to ending the relief program, interest again started accruing on federal student loans as of September 1, 2023. The freeze on student loan repayments will start again in October 2023.

In the summer of 2023, the Biden administration announced the SAVE (Saving on a Valuable Education) plan. This income-driven repayment plan requires borrowers to repay their loans based on their discretionary income. Discretionary income is the difference between your adjusted gross income (AGI) and 225% of the poverty line. Borrowers earning $32,800 or less, or a family of four earning $67,500 or less, won’t have to make monthly payments under the SAVE plan. Others will pay between 5 percent and 10 percent of their income.

Is Biden still pushing for student loan forgiveness?

After the Supreme Court struck down Biden’s student loan forgiveness plan, the President’s administration announced it would pursue another path.

Under the new effort, the administration would use the Higher Education Act, which allows the Department of Education to waive the obligations of federal loan borrowers under specific circumstances. The White House plans to argue that the pandemic qualifies as a national emergency worthy of extending student loan forgiveness. The plan will require the Department of Education to undergo a rulemaking process to establish how it will operate the forgiveness plan. This will require a series of public hearings and drafting of regulations. The process is expected to take months.

How does student loan forgiveness work for students misled by for-profit colleges?

The Borrower Defense to Repayment Program, announced by the Department of Education in 2021, was designed to offer full discharge of federal student loans for defrauded student borrowers of several for-profit colleges, as well as reimbursement of any amount paid toward the loan.

Additionally, the program offers the ability to remove negative credit reports made to credit bureaus and reinstate eligibility for federal student loans.

The program was temporarily blocked by a 5th U.S. Circuit Court of Appeals court in August 2023. The court will hear a legal challenge to the program in November 2023. According to the Department of Education, borrowers may still apply online for borrower defense relief but will not adjudicate those applications until the case has been settled.

Who doesn’t qualify for student loan forgiveness?

Student loan forgiveness plans are only for borrowers who took out federal loans. Private student loans do not qualify for any of the existing forgiveness plans.

Under different plans, different people qualify for student loan forgiveness. Under Biden’s initial plan, federal loan borrowers earning less than $125,000 per year or part of a household that earned less than $250,000 per year could receive forgiveness. The SAVE plan offers a cap on repayment requirements up to 10 percent of a person’s discretionary spending. Under a recent action by the Biden administration, borrowers who made 20 years or more of payments under Income-Driven Repayment plans received loan forgiveness.

Why aren’t private student loans eligible for forgiveness?

Private student loans aren’t owned by the federal government. They’re owned and disbursed by private lenders, credit unions or banks; therefore, any legislation enacted by President Biden doesn’t apply to private loans.

However, private lenders can offer targeted relief programs if you’re struggling with payments. If you have private student loans, check with your lender to see what options are available.

How do I check if I’ve received a Pell Grant?

To check if you’ve ever received a Pell Grant as part of your federal financial aid package, you’ll need to log into your account on the Federal Student Aid website.

Will student loan forgiveness be automatic?

Thus far, the Biden administration’s efforts to forgive student loans have included a mechanism for automatically forgiving outstanding balances. The initial plan, which has been struck down, offered forgiveness to millions of borrowers based on income data on record with the Department of Education. The new forgiveness plan, which would be completed under the Higher Education Act, would also likely be automatic.

In August 2023, the Biden administration automatically forgave outstanding balances for those on an Income-Driven Repayment plan.

Will I pay taxes on my canceled student debt?

Due to the Student Loan Tax Relief Act, all student loans forgiven by the federal government are not considered taxable income on a federal level through 2025. Some states may tax the forgiven debt amount, leading to a sizeable tax burden. As of September 2023, those states include Indiana, North Carolina, and Mississippi. Borrowers in Arkansas, California, and Wisconsin may also face taxes on relieved student debt.

Will my credit score go up after student loan forgiveness?

The impacts on your credit score after student loan forgiveness come down to your credit health and financial situation. After you pay off a loan, it’s not uncommon to see your score decrease by a few points since you’re lowering the average age of your accounts and potentially hurting your credit mix. On the other hand, having your student loans forgiven could improve your debt-to-income ratio and make it easier to make timely payments on your other debt.