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President Biden’s student loan forgiveness plan, explained

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On August 24, 2022, President Joe Biden unveiled a long-awaited program related to one of his campaign promises — student loan forgiveness. The merits of the federal program, aptly named the Student Loan Forgiveness Plan, have been the subject of much conjecture and debate both before and after the plan’s introduction.

In this article, we’ll answer some frequently asked questions concerning the plan, including:

Let’s start at the beginning.

How does Biden's student loan forgiveness plan work?

A statement released by the White House on August 24, 2022, succinctly explained how the plan works:

“The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples). No high-income individual or high-income household — in the top 5% of incomes — will benefit from this action. To ensure a smooth transition to repayment and prevent unnecessary defaults, the pause on federal student loan repayment will be extended one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023.”

The above statement reflects actions that the Department of Education will take. However, several proposed changes are still not guaranteed to be enacted.

  1. Help current and future student borrowers by cutting monthly payments in half for undergraduate loans. In addition, payment amounts would be capped at 5% of a borrower’s discretionary income.
  2. Reduce the cost of college and hold schools accountable when they raise prices. Biden has pledged to continue his fight to double the maximum Pell Grant and make community college free.
  3. Provide enhanced credits towards loan forgiveness for borrowers who have worked at a nonprofit organization, in the military, or in federal, state, tribal, or local governments.

These three changes are possible future changes; they have not been enacted or approved.

[ Related: How President Biden could impact your personal finances ]

Who benefits most from this student debt relief program?

If everyone eligible for loan forgiveness claims their benefit, as many as 43 million borrowers will experience some degree of financial relief. Twenty million of these will have loan balances small enough that the plan benefit will be enough to cancel their remaining balance.

Additionally, nearly 90% of the relief money will go to people earning less than $75,000 per year. No individual earning more than $125,000 or household making more than $250,000 will receive any relief dollars.

Since Black borrowers are more likely to take out larger student loans and twice as likely to receive Pell Grants than their White student peers, they appear to be the largest beneficiaries of the plan, which may help reduce income disparity between races.

What are the pros & cons of student loan forgiveness?

Many people are hailing the plan as the solution to the age-old problem of providing fair college access to everyone. They are focused on the positive aspects of the plan.

But, like any government program where tax dollars are being used to help people struggling financially (i.e., Medicaid, welfare, school lunches), there are people focusing on what they deem to be the negative aspects of the student loan forgiveness plan.

Let’s look at both.


The plan is a benevolent act of helping people struggling with debts, which is primarily the middle-class and below. People in this group struggle with high monthly payments and ballooning balances that keep them from building wealth through putting money into a retirement account, buying a home, or starting a small business.


It’s seen by some as unfair to those who have already paid off their student loans. This group believes that if the government is going to help people saddled with debt they can’t repay, they should receive assistance paying their mortgages, car loans, and credit card debt.


It will help Biden and the Democrats during the mid-term elections. This is a pro for Democratic supporters and a con for Republicans, but we’ll count it as a pro since Biden did get it done, and millions of people will be indebted to him and the Democratic Party as they try to retain control of Congress.


Many people receiving the benefit don’t need it, according to those opposed to the plan. The numbers show that in 2019, the average graduate of a four-year, not-for-profit college left school with $29,000 in student loan debt, while the average four-year degree holder earns six to seven figures more during their life than someone with only a high school diploma.

Will the student loan amount forgiven be taxable?

The amount of the student loan or Pell grant forgiven will not be subject to federal income tax. However, it may be subject to state income taxes. States with an income tax could pass legislation to tax the amount forgiven, but they also may not.

Thirteen states considered taxing the stimulus payments people received due to COVID-19, but none acted on it. If you live in a state that doesn’t have an income tax, you’re home free. Otherwise, you’ll have to wait and see.

If I made payments during the payment pause, can I get that money back & be granted loan forgiveness?

Yes, you can receive a refund for any payments you made during the payment pause period that began on March 13, 2020, and will last until December 31, 2022. You’ll need to contact the company that services your loan and request a refund.

When the refund is issued, your loan balance will be increased by the value of the refund. You’ll then request loan cancellation for that new total. For example, if your loan balance is $10,000 and you paid $3,000 towards your loan during the payment pause, your $3,000 refund will be added to your balance, making it $10,000 again. You’d then request cancellation for your new total under the plan.

Will student loan forgiveness make inflation worse than it already is?

Many people are feeling the effects of inflation and are concerned that the $400 million to $600 million Student Loan Forgiveness Plan will worsen inflation.

According to most economists, there is no reason to fear that will happen. They believe the plan’s effect on inflation will be minimal and that the millions of dollars in forgiven loans will be pumped back into the economy. Whether that additional spending helps or hurts inflation is open to debate and remains to be seen.

[ Inflation Impact Survey: 88% cut spending, while many worry about providing food & paying the mortgage ]

Don’t forget to apply for student loan forgiveness

To receive your student loan forgiveness benefit, you’ll need to submit an application. According to the U.S. Department of Education, those applications will be available in early October 2022. Your application must be submitted before November 15, 2022, to receive relief before the latest payment pause extension ends on December 31, 2022.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published August 25, 2022
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