What Biden’s loan forgiveness really means for many student loan borrowers

Here’s what to do if you’re one of the many borrowers who won’t qualify for broad loan forgiveness

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as "Credible" below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

For many borrowers, $20,000 of forgiveness won’t wipe out all their student loan debt. (Shutterstock)

Many Americans who struggle with student loan debt have been waiting for an announcement on broad-scale student loan forgiveness and an extension of the federal student loan payment pause. 

But not all student loan borrowers will qualify for this forgiveness, and even if you do, you may find yourself with a lingering balance to manage. Here’s what this forgiveness could mean for many borrowers, and what you can do if you have more than $10,000 or $20,000 in student loan debt.

Who will benefit from $10K-$20K of forgiveness?

The program announced Wednesday will give borrowers who received Pell Grants up to $20,000 in debt cancellation and up to $10,000 for federal student loan borrowers who didn’t receive Pell Grants. Borrowers are only eligible for the forgiveness if their annual income is less than $125,000 ($250,000 for households).

About 15% of Americans have student loan debt, according to the Urban Institute. With an average household income of $92,324, many borrowers will likely fall below the thresholds for broad forgiveness.

However, the majority of people with student loan debt have balances of more than $10,000. In fact, average federal student loan balances among bachelor’s degree holders range from $26,100 to $35,700, depending on the type of school the borrower attended, according to the National Center for Education Statistics. 

This means a significant number of borrowers who meet the income threshold will still have federal student loan debt after receiving forgiveness. And they may also have private student loan debt that doesn’t qualify for any kind of forgiveness.

What to do if you’re not eligible for $10K-$20K of student loan forgiveness

Biden’s announced that forgiveness doesn’t apply to borrowers with annual incomes of more than $125,000 — $250,000 for those married filing jointly. But some borrowers may still be able to qualify for other forgiveness programs, including:

  • Public Service Loan Forgiveness
  • Loan forgiveness for healthcare workers
  • Federal Teacher Loan Forgiveness Program
  • Perkins Loan Teacher Cancellation
  • State-based loan forgiveness for certain professions

Refinancing student loans can lead to a lower interest rate or smaller payment amount. Credible makes it easy to compare refinance rates from multiple lenders.

What to know about the payment pause extension

Wednesday’s announcement was the seventh time the student loan payment pause introduced in the CARES Act has been extended. Borrowers with federal student loans won’t have to make payments, and their debts won’t accrue interest, for another four months.

Since the payment pause began in March 2020, the Department of Education has deferred around $195 billion in loan payments for about 37 million borrowers, according to the Federal Reserve.

When will borrowers have to resume making student loan payments?

Wednesday’s extension gives borrowers with federal Direct Loans until Dec. 31, 2022, to continue deferring payments. After Jan. 1, 2023, loan servicers will start sending billing statements or other notices to borrowers at least 21 days before their first payments are due. Borrowers can also proactively contact their loan servicers to get an estimate of their payments and due dates.

Before payments resume, the U.S. Department of Education recommends borrowers:

  • Update their information with their loan servicer by logging into their account on the servicer’s website or mobile app. 
  • Sign up for autopay, or make sure their previous autopay enrollment is still valid. Automatic payments can shave 0.25% off Direct Loan interest rates.
  • Use the Department of Education’s Loan Simulator tool to make sure they’re on the best payment plan for their financial situation.

If you won’t be able to make your student loan payments

Federal student loan payments will resume on Jan. 1, 2023. Borrowers who won’t be able to make their federal student loan payments at that time have some other options:

  • Change payment plans. Federal loan borrowers have access to four main types of income-driven repayment plans. The plans set monthly payments at an affordable level, based on family size and income.
  • Consider consolidation. A federal Direct Consolidation Loan merges multiple federal student loans into one — and allows borrowers to extend their repayment period up to 30 years. However, by extending their repayment term to get a lower monthly payment, borrowers will pay more interest in the long run.
  • Refinance to get a lower rate. Private student loans aren’t eligible for income-driven repayment, and some federal borrowers won’t qualify for IDR plans either. Refinancing with a private student loan could allow borrowers to lower their interest rate or pay off their loans faster. Keep in mind, though, that federal borrowers who refinance to a private loan lose access to federal loan benefits, like IDR plans and forgiveness programs.
  • Explore deferment or forbearance. Federal student loan borrowers who can demonstrate economic hardship, are in the military, or meet other qualifications, may be able to ask their servicer for a deferral or forbearance. 

With Credible, you can quickly and easily compare student loan refinance rates from multiple lenders, without affecting your credit.