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Student Loan Forgiveness Initiative

There has been a lot of hype surrounding President Biden’s recent student loan forgiveness initiative, but what exactly does his plan include? As the pandemic-era payment pause is set to expire, this initiative consists of a three-step plan to help transition federal student loan borrowers back to their regular payment schedules.

The three-step plan includes:

Step 1: Extension of the pause on federal student loan repayments

For federal student loan borrowers, the pause on student loan repayments was extended to December 31, 2022. In other words, beginning January of 2023, borrowers with outstanding federal student loan balances must resume making their loan repayments. this extension has been automatically applied to all eligible loans.

Step 2: Providing debt relief to low- and middle-class borrowers

For most federal student loan borrowers, if they meet the income threshold, they will be able to receive up to $10,000 in federal student loan forgiveness. Pell Grant recipients, borrowers with an income below $125,000 ($250,000 for married borrowers filing jointly), the amount of forgiveness jumps to $20,000.

Step 3: Make student loan payments more manageable for current and future borrowers

For the final step in his plan, President Biden has implemented additional steps to help out borrowers once their payments resume:

  • Borrowers will now pay no more than 5% of their discretionary monthly income on student loan payments (down from the previous 10%).
  • The amount of discretionary income protected from loan repayments will be increased to guarantee that no borrower, earning under 225% of the federal poverty line, will have to make a payment. For a single borrower, this amount is equal to an annual wage of approximately.
  • For loans with balances of $12,000 or less, balances will be forgiven after 10 years of payments (previously, this occurred after 20 years).
  • For those on an income driven repayment plan, as long as the borrower is making their scheduled monthly payments, any unpaid monthly interest will be covered. This means that if the borrower is making regular payments on the loan, their outstanding loan balance will not increase.

Many borrowers are now asking the question, “how and when will I receive this benefit?” Most borrowers will need to fill out an application with the Department of Education. It is expected that over 37 million borrowers will benefit from the relief, with an estimated 20 million borrowers having the full balance of their remaining student loan debts forgiven. The Department only has income information on file for a handful of borrowers, so be sure to submit an application at your earliest convenience. To access the recently launched application, visit The application only requires basic information such as your name, social security number, date of birth, phone number, and email address. It should only take most applicants a few minutes to apply.

Borrowers have until December 31st, 2022, to apply for student loan forgiveness. However, we highly recommended that borrowers apply for the forgiveness no later than November 15th, 2022 since  it is estimated that it will take approximately 4-6 weeks for the forgiveness to hit borrowers accounts. Applying by November 15th should help borrowers see the relief in their account before the payment pause on student loans ends on January 1, 2023. 

Also, please keep in mind that these student loan forgiveness details are not set in stone. There are currently on-going challenges in the court system that could slow down, or even prevent, student loans from being forgiven.  However, we still urge you to fill out the loan forgiveness application now so that it can be processed once all the court challenges have been resolved.

Thanks to the American Rescue Plan Act, this debt relief will not be considered taxable for federal income tax purposes. The states all have different rules on the taxability of student loan debt relief, but for NJ residents, cancellation of debt is not considered a category of income under the Gross Income Tax Act. New York currently has no plans to tax student loan debt forgiveness either, and legislation is working to solidify this.

Some borrowers were able to take advantage of the payment pause and pay off their student loans without accruing interest. If you fall into this group, then you should be able to contact your loan provider and request a refund of payments made during the payment pause, which began on March 13th, 2020. This process may take between a few weeks or a few months, so be sure to contact your loan servicer as soon as possible.

If you have any questions on how student loan forgiveness will affect your tax situation, or if your income in within the limits to qualify for relief, be sure to contact Eiger, Lang & Company, CPA LLC where we help make your life less taxing!