Student Loan Forgiveness

Steve Lear |

By Kyle Berg, CFP®, BFA™

As you have probably heard, the government has reached an agreement to forgive some student loans. The plan was announced by President Biden at the end of August. This has come with mixed reactions from the public, but is overall a step forward to try and tackle the $1.75 trillion student loan debt issue. This offer is specific to federal student loans, which make up 92% of the student debt universe, with the remaining 8% being private loans. This plan is set to assist those most in need, so there are income limitations to be eligible. The income eligibility is based on your adjusted gross income (AGI), which includes tax deductions. Individuals with an AGI below $125,000, or $250,000 for those filing jointly, for tax years 2020 or 2021, would be eligible for forgiveness under this plan.

At Affiance Financial, we value staying curious, and strive to stay on top of financial planning developments that might impact our clients or someone they care about. Here are some of the top questions you might have about student loan forgiveness.

How much is being forgiven?

In the plan, it states that for qualifying borrowers that the government will forgive $10,000 in student loans for most that qualify, with up to $20,000 being forgiven for those with federal parent PLUS loans, who had received a Pell Grant. There are some additional nuances, so keep reading.

How does the government know my income?

Currently the Department of Education already has income information on almost eight million borrowers due to FAFSA, and applications for income-driven repayment plans. But there is a likelihood that some borrowers would need to provide their income information in order to apply for student loan forgiveness.

When can I apply for student loan forgiveness?

The expectation is that you will be able to apply for forgiveness in early October. To stay informed, you can sign up to be notified through the Department of Education’s subscription page:

Will I have to pay taxes on the amount forgiven?

From a federal standpoint, the forgiveness will not be taxable to you. BUT, there is a likelihood that it could still be taxable at the state level. The final verdict will vary by state and if they already have tax law that allows for student loan forgiveness. You can check on your state’s situation here:

Do I still get loan forgiveness if I am a current student?

Yes! Eligibility for current student borrowers is based on the FAFSA application. If the student is claimed as a dependent on a tax return (usually if they are under 24 years of age) then income eligibility is based on the parent’s income. But in other cases it is based on the student’s income.

What types of loans are eligible for forgiveness?

Loans that are included in the plan are federal loans for undergraduate, graduate, and parent PLUS. Private loans are not eligible for forgiveness under this plan.

I am already on a repayment plan, will applying for loan forgiveness affect my payments?

If student loan debt remains after the $10,000 or $20,000 amount is forgiven, then borrowers will see their payments recalculated to a standard repayment plan to pay off the loan over ten years. However, for borrowers in an income-driven repayment plan, it is unlikely that they will see their payments change, due to the payment calculations being based on household income and family size rather than the amount of debt. It is important to reach out to your student loan company to find out how applying for loan forgiveness will affect your payments.

Is there anything else?

There is still currently a pause on payments on federal student loans, which was extended through the remainder of 2022, with payments resuming in January 2023.

Additionally, the government is currently working on a plan to rework the income-driven repayment plan to limit the amount of discretionary income eligible for payments to 5%, down from the current 10%. There is currently no timeline for when this would be enacted.

Finally, if you were trying to get ahead on your loans during the payment pause, you can request a refund for what was paid during the pandemic. To do so, contact your lending institution.

As with most new plans, even the experts are still working out all the details. It is important that you work with a trusted partner to help guide you through your financial planning decisions. If you have questions regarding the plan, don’t hesitate to reach out to your Affiance Financial advisor.



There can be no assurance that the content made reference to directly or indirectly in this blog post will be suitable for your individual situation, or prove successful. Due to various factors, including changing conditions and/or applicable laws, the content is only reflective of current opinions or positions and is subject to change at any time and without notice. Moreover, you should not assume that any information contained in this blog post serves as the receipt of, or as a substitute for, personalized investment advice from Affiance Financial. Please remember to contact Affiance Financial if there are any changes in your personal/financial situation or investment objectives.