Student Loans – Loan Forgiveness & Other Benefits

For those struggling to repay student loans, President Biden’s announcement in August 2022 that a portion of federal loans could be forgiven was a welcome relief. While the legality of the plan is currently being challenged, you should apply to avoid missing out if you are eligible. When it comes to student loans, it’s important to remember that the federal plan is not the only benefit available, so it’s wise to consider all the options available to you.

Loan Forgiveness

As announced by President Biden, up to $10,000 for some federal student loans and up to $20,000 of Pell Grants can be forgiven through this new forgiveness program. Individuals holding certain federal loans with income below the following limits in 2021 can benefit:

  • $250,000 if married and filing jointly or head of household
  • $125,000 if married and filing separately or single

To apply, create an account at and complete the application before it closes on December 31, 2023.

While the loan forgiveness will be exempt from federal taxes, the amount forgiven may be taxed at the state level. Without receiving any additional income directly, this added bill may be difficult for some to pay.

If you have made payments to the balance of your loan while repayments have been paused, contact your servicer, as you may still be able to benefit from this loan forgiveness program.

Loan Repayment Pause

President Biden announced that the temporary pause on federal student loans would be extended one final time through the end of 2022. Beginning in January 2023, loan payments will be collected once again.

Student Loan Interest Deduction

Taxpayers may deduct up to $2,500 per year of interest paid on qualified educational loans, which includes eligible private loans.

There is an income phase-out that is more restrictive than the loan forgiveness program. If you make more than the lower limits, you will only be able to take part of the deduction, and if you make more than the upper limits, you are unable to take any of the deduction.

  • $140,000 to $170,000 for married taxpayers filing jointly
  • $70,000 to $85,000 for all other taxpayers

Public Service Loan Forgiveness Program (PSLF)

If you are employed full-time by the government or a not-for-profit organization, then you may be eligible for a forgiveness program that is separate from the President’s recent announcement. Under this plan, borrowers repay their loan through an income-driven repayment plan that requires 120 qualifying monthly payments to be made. Once the requirements have been satisfied, the remaining balance of the loan is forgiven.

To apply for this benefit, visit the PSLF website.

Income-Driven Repayment (IDR) Plan

Recent updates were proposed to make repayment plans more affordable when taking the borrower’s income and family size into account on federal loans.

The monthly payments would be cut in half under this plan, lowering the annual payments on average by more than $1,000. After 10 years of payments, balances would be forgiven, which cuts the previous length of 20 years in half. This plan also covers the unpaid monthly interest, unlike the current rules which add the unpaid interest to the existing loan balance.

The current plan is known to be complex and often limiting, deterring many borrowers from applying. To make it more accessible, the Department of Education is making administrative changes as well. Beginning next summer, borrowers can avoid recertifying their income each year by granting the Department of Education access to pull their income, instead of the manual process used today.

Qualified Tuition Programs (529 Accounts)

Up to $10,000 can be distributed from a 529 account tax-free to pay federal, as well as many private, student loans. This is not an annual benefit, but instead an amount that can be used across your lifetime. You may also make distributions from the account to pay off up to $10,000 of student loans of a sibling. This $10,000 does not count towards the lifetime benefit of the account’s beneficiary, but instead counts towards the sibling’s benefit.

These benefits may work in tandem with each other to provide you some meaningful relief on your student loans. If you would like to learn more, please reach out to our office or to your accountant to discuss if you may qualify.

Presented by Josh Kaplan, CFP®