Who Qualifies for Student Loan Forgiveness?

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    • FNBO

      Oct 28 2022

Who Qualifies for Student Loan Forgiveness?

Forty-five million Americans are carrying student loan debt, according to an analysis of Census data from January of 2022. But the recently announced Student Debt Relief Plan could reduce that education-related debt for many borrowers. The three-part program offers up to $20,000 in student loan forgiveness, but who is eligible and who stands to benefit the most?

Making the Case for Student Loan Debt Relief

For many Americans, affording college requires financial aid. As a result, student loan borrowers in the U.S. owe nearly $1.75 trillion collectively in active debt. 

Breaking it down, that works out to about $30,000 for the average borrower, but 14% of Americans owe more the $100,000 in education-related loans. Paying off student loan debt is a troubling financial burden that impacts individuals and the overall economy.

According to research conducted by the Education Data Initiative, 35% of student loan borrowers find it difficult to pay for necessary expenses due to the student debt they carry. Additionally, with every 1% rise in a borrower’s debt-to-income ratio, their consumption of economic goods declines by as much as 3.7%. The reduction in spending has a complex impact on the economy that could continue for decades to come, as half of student borrowers will owe $20,000 on loans for as many as 20 years after graduating.

To help American households manage the impact of education-related debts in the face of the COVID-19 pandemic, the Biden-Harris administration enacted a student loan pause beginning in 2020, allowing borrowers to defer payments on active student loans. While the break helped many borrowers weather the economic uncertainty of the past few years, the pause ends in January 2023. At that time, all borrowers will be required to start repaying loans again.

Concerned that households will be unable to meet their required payments in the face of rising inflation, the Student Debt Relief Plan was announced in August 2022 The plan is designed to help current borrowers by enacting three related initiatives. 

How the Student Debt Relief Plan Works

The federal Student Debt Relief Plan takes several steps to help borrowers better manage student loan debt. The first imposes a new cap on how much a borrower must pay. Current caps are set at 10% of the individual or household discretionary income. The new plan reduces that cap to 5%. 

Previously, the U.S. Federal Student Aid office defined discretionary income as the difference between your annual income and 150% of the poverty guideline for your family size and state of residence. The new plan will raise the threshold to 225% of the federal poverty level. According to a fact sheet released by the White House, this could cut the average student loan payment by more than $1,000 a year.

Another important change enacted by the plan will help borrower’s whose current income-based repayment fails to cover the interest assessed on the loan. According to former guidelines, when borrower payments failed to cover the interest owed, loan balances continued to grow each year because borrowers were unable to pay down the principle. Under The Student Debt Relief Plan, balances will no longer escalate when income-based repayment amounts fail to cover the interest.

However, the most compelling part of the Student Loan Debt Relief Plan for many Americans is the option to receive one-time debt forgiveness. Borrowers who stand to gain the biggest benefits are those who received Pell Grants during their schooling. Pell Grant recipients may receive student loan forgiveness of up to $20,000.

Fortunately, students who did not meet Pell Grant eligibility requirements have not been left out of the debt forgiveness plan. These students may receive up to $10,000 in debt relief. 

In the end, how much an individual will receive in loan forgiveness will depend upon income levels. To be eligible for debt relief, borrowers must currently have an individual income of less than $125,000 or $250,000 for households. The White House fact sheet indicates that nearly 90% of relief funds will go to those earning less than $75,000 a year.

How to Apply for Federal Student Debt Relief

To find out if you are eligible for debt relief, you’ll need to head over to and log into your account. If you don’t remember your login details, the office of Federal Student Aid offers guidelines for recovering your username and password on its website. Borrowers who did not previously have an account will need to create one.

In addition to filling out the online application, borrowers are encouraged to sign up for text alerts and to make sure their current student loan servicer has the correct address and contact details on file. The name of your loan servicer should be listed on your account dashboard.

The Student Loan Debt Relief Plan was created to provide Americans with more saving and spending power by reducing household levels of student debt and offering adjusted repayment terms. For 29% of Americans, that could mean saying goodbye to student loan debt forever.

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.