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$10k Of Your Student Loan Debt Was Just Forgiven. Now What?

Student loan debt forgiven through government gift/program

Updated 6/30/23: The Supreme Court invalidated the student loan forgiveness plan today, rendering this post obsolete.

Student loan debt is staggering

Student loan debt is a financial burden that 43% of college attendees undertake in pursuit of a better life. While student debt may seem routine, it has become more prevalent in recent decades due to the escalating tuition arms race. 

Student borrowers in the United States nowadays owe around ~$40,000 on average, which is a staggering figure considering the average annual income before taxes is ~$63,000 (as of 2022).

Therefore, it is exciting news that the Government will now forgive between $10,000 and $20,000 in student loan debt for eligible borrowers. 

How the program works

Under the newly announced forgiveness program, borrowers must meet the following criteria for automatic forgiveness:

  • The borrower must have federal student loan debt.
    • If the borrower has a Pell grant and earns under $125,000 individually (or $250,000 if married), they qualify for up to $20,000 in forgiveness.
    • If the borrower did not have a Pell grant and earns under $125,000 individually (or $250,000 if married), they qualify for up to $10,000 in forgiveness.
  • Have their income on file with the Department of Education.
  • If the debt is privately held (not by the federal government) it must have been consolidated before 9/29/2022 for eligibility. Loans issued by the Federal Family Education Loan and Federal Perkins Loan programs fall into this category.

It is that simple. No further action is necessary for these borrowers. However, those without their income on file are still eligible but will need to wait for a portal to open on the Department of Education’s webpage. Because all student loan payments remain automatically suspended until 12/31/2022 through this newly announced program, borrowers have plenty of time to have their debt forgiven before the halt ends.

Once the portal is live, borrowers without their income on file can apply for forgiveness.

Please visit the Federal Student Aid website for more information on the Student Loan Debt Relief Plan.

Now what?

Suppose you are eligible for automatic or manual student loan debt forgiveness. The next step after celebrating with an exclamation of YES is creating an action plan for any remaining debt.

Student loan debt is just one of many debts, none of which are ideal, excluding mortgage debt. So, it would be best if you took this moment of progress and celebration to build momentum towards paying off any remains debts. 

For those unsure where to begin, I encourage you to start with the highest interest rate debt after creating an emergency fund. Notably, any obligation with a 8% or greater interest rate is an emergency that requires addressing ASAP!

Debt dominos

Once you have paid off your highest interest rate debt or consolidated it into a more reasonably accruing personal loan, you can move on to lower interest rate dues. As this transition happens, you will notice that your debt is no longer spiraling out of control and is either stabilizing or decreasing.

As a former loan shark points out in a recent post to my blog, this is critical since it allows you to break the cycle.

Soon your debt dominos will begin to fall, and financial freedom can become your next goal.

Debt payoff or to invest?

As you pay off your student loan and other debts, a question will likely arise about when to start investing. I suggest weighing the opportunity cost of investing versus paying off debt.

For those not taking advantage of any company match in their 401(k), the answer will likely be to contribute up to the match amount. Why? Because most companies match either dollar for dollar or fifty cents on the dollar for every buck you put in. This means your return on investment is 100% or 50%, depending on the company.

If you have already taken advantage of any company match, you must weigh your debt interest rate with what you could earn in the market. As a rule of thumb, I only suggest investing if your debt interest rate is sub 8%. Anything above 8% likely should be paid off as soon as possible, which I explain further in my post Debt Payoff Versus Investing Extra Cash – 5 Facts.

Closing thoughts

Student loan debt is one of many debts Americans carry, but the new program announced on August 24th, 2022, is a relief for many. If you qualify to have your debt relieved, please tell me in the comments below what your next financial moves will be. Have a great day!


How does the student loan debt relief program work?

A borrower must have federal student loan debt and make under $125,000 as an individual or $250,000 as a household. If the Federal Student Aid program and Department of Education have a borrowers income on file, no further action is needed and $10,000 to $20,000 of debt is instant relieved. ($10,000 for ordinary borrowers and $20,000 for Pell grant recipients). If your income is not on file with the government, a portal will soon open to upload the information needed to apply for forgiveness.

Will my student loan debt forgiveness be taxed?

Any federal student loan debt forgiven is not taxable federally through 2025, thanks to the American Rescue Plan passed in 2021. However, you may owe state taxes depending on your local laws if there is an income tax. The best way to determine if you will owe state taxes is by checking with your state filing agency or a certified preparer.

How long are federal student loans being suspended before repayments resume?

Through December 31, 2022. Then, they will resume in January of 2023.

How much debt will be relieved under the Biden-Harris Administration’s Student Debt Relief Plan?

Between $10,000 and $20,000 per borrower of federal student loans. Those with Pell grants qualify for up to $20,000 in forgiveness, while those without them qualify for $10,000 in forgiveness.

How do I know if I am eligible for debt cancellation?

A borrower must have federal student loan debt and make under $125,000 as an individual or $250,000 as a household.

What if I already paid off my student loans?

You may be able to request a refund if the repayment occurred after March of 2020. However, the Department of Education needs to clarify its guidance for the process to be understood. As it stands, it seems possible for borrowers to request a refund and then have their loans forgiven up to the qualifying amounts.

Who qualifies for the student loan forgiveness Act?

Federal student loan borrowers who make under $125,000 individually or $250,000 as a household.

What does up to $10,000 in loan forgiveness mean?

If you have $10,000 in student loan debt, the full amount is forgiven if you meet the income requirements under the newly announced relief program. However, if you owe less than this amount, you can only receive that amount as a forgiveness. For example, if you have $8,000 in federal student loan debt remaining, you will have $8,000 forgiven.

Where can I learn more about the federal student loan forgiveness program?

On the Federal Student Aid program website, located here.

What is the average debt for student loans?

Student borrowers in the United States nowadays owe around ~$40,000 on average, which is a staggering figure considering the average annual income before taxes is ~$63,000 (as of 2022).

Mile High Finance Guy

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