What to know about student loan forgiveness — right now
5 min read
August 30, 2022 • Spruce
Editor’s note: The Biden-Harris Student Loan Forgiveness Program as described in this post is currently on hold due to a legal challenge.
Student loan forgiveness is a hot topic, so by now you’ve probably heard about debt being erased for millions of Americans. One goal of this debt cancellation program is to bring relief to borrowers with the greatest economic need. If you’ve been struggling with repaying student loans, you may have taken a big sigh of relief as you heard the news. And we get it — every bit helps when you’re trying to manage your budget and pay back school debt.
However, as with many money matters, it’s good to take a close look into what this really means for you. Do you need to do anything to get the relief? Are there any financial impacts to cancelling debt?
Read on as we look at what you need to know about the new student loan forgiveness plan — and what you should be doing now.
Student loan forgiveness plan: How much relief can you get?

First, let’s recap the relief that’s on the table. How much of your loan debt can be cancelled depends on the type of loan and your income level:
- Up to $10,000 to non-Pell Grant recipients if your individual income is less than $125,000 ($250,000 for married couples)
- Up to $20,000 to Pell Grant recipients if your individual income is less than $125,000 ($250,000 for married couples)
- Full forgiveness may be available for those working for non-profits, the military or federal, state, tribal or local government now through October 31, 2022, based on temporary rules for the Public Service Loan Forgiveness Program.
4 Things to know about the new student loan forgiveness plan – and what to do now
With all the buzz about the program, there’s a chance some of the details and impacts have been lost in the mix. Here are four key takeaways for anyone with student loan on their shoulders.
1. What to know: Loan forgiveness is not automatic for all.
While 43 million people will be eligible for student loan forgiveness with this plan, only eight million will get it automatically. It boils down to whether the U.S. Dept. of Education has your income information.
What to do: Apply for relief once the application is ready. First, sign up for notification from the Department of Education subscription page to learn when the form has been released.
2. What to know: You could get hit with state taxes.
Normally, cancelled debt is considered income, which means you’d owe taxes on it. Thanks to rules from special legislation in 2021, you won’t have federal taxes this time (whew!). But some states may still consider this income in the year it’s forgiven.
What to do: First, check to see if you’re in a state that doesn’t have income tax (list directly below*). Borrowers in those states are off the hook. For other states, the details haven’t been finalized. Some states may adopt the federal rules, some may have their own.
How much tax you may owe depends how your state will handle it, plus your personal filing situation. It’s possible that your tax bill could climb anywhere from (or your refund reduced by) a few hundred dollars or more — the specific amount depends on your tax situation. If your state does tax the forgiven amount, you may be eligible for an exception, such as the insolvency exception. Just knowing that your taxes may be affected can help you prepare for when it’s time to file.
Plus, know that help is here. If you need to save for the extra money you may need for taxes, Spruce’s saving goals feature can help.
And if you need tax help, H&R Block has tax experts in every state who can answer state tax questions and more.
*States with no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
3. What to know: Student loan repayments start up again in January.
There’s been a freeze on most student loan repayments since early 2020. With this new plan, the freeze has been extended through December. That may sound far away, but January will be here before you know it.
What to do: Start to plan now to put loan payments back into your budget — that is if you’ll still have a balance after the loan forgiveness is factored in. After two plus years of a freeze, starting your loan repayment again may put you in a bit of a panic. Take a moment for a deep breath and know that right now you’ve got a bit of time on your side. We can help you create a budget and offer money savings tips that will help you carve out room in your budget for your loan payment.
Looking forward, if you’re paying down your student loan again, you may be eligible for the up to $2,500 student loan interest deduction.
4. What to know: Repayments may become more manageable.
This part of the program is not set in stone, but we can still outline what’s been proposed.
Here’s what’s in the plan for income-driven repayment plans:
- You would pay no more than 5% of your discretionary income monthly on undergraduate loans.
- Categorizes more of your income as non-discretionary — meaning it’s off the table for repayment.
- You’d be able to have your loan balance forgiven after 10 years of repayment for borrowers with original loan balances of $12,000 or less.
- Your unpaid monthly interest would be covered, keeping your balance from growing as long as you keep making payments.
What to do: Keep up to date on how this proposal unfolds. There could be additional steps to take if and when the program gets set up.
How Spruce can help you get better with money
Whether it’s carving out funds to help pay back student loans or getting you started with creating a budget, Spruce is here to help. With smart tools like saving goals, cash back rewards, no hidden or monthly fees (fee transparency) and more, you can Spruce can help you get well on your way to getting better with money each day.
Find out more about all the features Spruce has to offer.
This information provided for general educational purposes only. It is not intended as specific financial planning advice as everyone’s financial situation is different.
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