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Student Loan Forgiveness: Your Questions Answered

On August 24, 2022, President Biden announced debt forgiveness for federal student loan borrowers. He also announced a final extension on student loan payments through Dec. 31, 2022.

While we are still waiting for certain details to emerge, here’s what we know right now:

How Much is Being Forgiven?

Eligible student loan borrowers will receive up to $10,000 of existing student loan debt forgiven. In addition, recipients of a Federal Pell Grant will be eligible for up to $20,000 of existing debt forgiveness.

Income Limitations

Student loan forgiveness will be restricted to individuals with income less than $125,000 and married couples or heads of households with income less than $250,000. The income limit is based off the taxpayer’s 2020 or 2021 tax return, whichever one is lower.

How do I get Forgiveness?

Automatic forgiveness will be applied to the 8 million borrowers whose income is already in the hands of the Department of Education. Most of this data comes through FAFSA filings and individuals who certified their income when applying for an income-based repayment plan.

For those whom the Department of Education doesn’t have data on, the Department of Education will have an application available by mid-October, and the filing process is estimated to take four to six weeks. You can sign up for updates on the Department of Education’s website.

Who qualifies for Pell Grants and how do you know if you received one?

Pell Grants are for undergraduate students who “display exceptional financial need." Pell Grant recipients will receive $20,000 in student debt forgiveness The maximum Pell Grant a student can receive for the 2022-2023 school year is $6,895. The easiest way to check if you or your child received a federal Pell Grant is to log into your Federal Student Aid account at Once logged in, you can find whether you received a Pell Grant on the “Aid Summary” page.

Is it Just Undergraduate Loans that Qualify for Debt Forgiveness?

No, undergraduate student loans are one category of loans that will be forgiven. Parent PLUS loans, as well as debt from graduate loans will be eligible for forgiveness.

Parents and students alike will each be eligible for debt forgiveness (assuming both meet the income limitations), as confirmed by the Department of Education. In addition, if the student and parent each received a federal Pell Grant, each will be eligible for forgiveness of the full $20,000.

What if I or My Kids are Still in School?

Current college students will be eligible for debt forgiveness. If the student is claimed as a dependent on their parent’s tax returns, their eligibility will be based on their parent’s income. Please note that the student debt forgiveness for current students is only applicable to students who had loans in place before July 2022.

Is There Any Provision if I Paid my Student Loan During the Forbearance Period?

Yes, you could receive a refund if you paid federal student loans during the payment pause. Federal Student Loan borrowers who paid during the forbearance period of March 13, 2020, and Aug. 23, 2022, can request a refund. If you currently owe less than the $10,000-$20,000 threshold and are eligible for forgiveness, you should request a refund so can then get the full amount forgiven.

Any payment made after Aug. 24, 2022 that brings a borrower below the $10,000-$20,000 threshold will automatically be refunded without the borrower requesting it.

Will I Be Taxed on My Student Loan Forgiveness?

Student loan forgiveness will not be taxable at the federal level, per the American Rescue Plan of 2021.

Although this income will not be taxed on your federal return, states are free

to tax money forgiven by the federal government as income. Currently, Wisconsin is the only state to announce taxation of the federal student loan forgiveness. For Wisconsin residents, this could result in additional $530 of income tax.

What Loans are excluded from debt cancellation?

FFEL Loans, Perkins Loans and private loans that aren’t held by the Department of Education will be excluded from student debt forgiveness. FFEL Loans are loans issued by banks and credit unions, and Perkins Loans are issued by schools.

What if I Have Less than $10,000-$20,000 in Student Loan Debt?

The Department of Education has stated the relief is capped at the amount of a person’s outstanding debt. For example, borrowers who are eligible for $10,000 in debt relief but only have $6,000 outstanding will receive $6,000 in debt relief.

Is There Anything Else to Note in the Executive Order?

In addition to the loan forgiveness, President Biden extended the federal student loan forbearance period a final time to December 31, 2022. This means that starting January 1, 2023, any student loans not forgiven will require payment.

To assist borrowers with monthly payments, the Biden administration also proposed a rule to reduce the amount for income-driven monthly payments from 10% to 5% of a person’s discretionary income. This is your income after taxes and other living expenses. In addition, Biden’s new rule would also guarantee no borrower with an income below 225% of the federal poverty level (currently ranging from $30,500 for single filers, up to $83,677.50 for a married couple with four children) will have to make a monthly payment on their student loan debt. Any unpaid monthly interest would be covered so no loan balance will grow if borrowers make their required monthly payments.

Finally, the Biden administration announced loan balances paid under income-driven repayment plans would be forgiven after 10 years of payments for borrowers with $12,000 or less in debt. Currently, the forgiveness under similar income-driven repayment plans is available to borrowers after 20 years of payments.

What Does This Mean for Me?

Besides the immediate benefit of loan forgiveness for millions of borrowers, this level of spending will need to be offset somehow. Most likely, this will come in the form of higher future taxes and other revenue generation by the IRS. As with all government giveaways, it’s likely to exacerbate our inflation problem, increase the deficit, and remove the consequences of personal responsibility.

Having a full-time partner to navigate the ever-changing tax code will increase in importance as the federal government looks to increase taxes to pay for careless spending policies like student loan forgiveness. Schedule a meeting below to discuss how we can come alongside you.

This article is a general communication being provided for informational and educational purposes only and is not meant to be taken as tax advice, investment advice or a recommendation for any specific investment product or strategy. The information contained herein does not take your financial situation, investment objective or risk tolerance into consideration. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. Any examples are hypothetical and for illustration purposes only. All investments involve risk and can lose value, the market value and income from investments may fluctuate in amounts greater than the market. All information discussed herein is current only as of the date of publication and is subject to change at any time without notice. Forecasts may not be realized due to a multitude of factors, including but not limited to, changes in economic conditions, corporate profitability, geopolitical conditions, inflation or US tax policy. This material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed.

LEGAL, INVESTMENT AND TAX NOTICE. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice.


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