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The HOWs of the new federal student loan forgiveness program 

President Biden announced that a student loan forgiveness plan would go into effect this year for federal loan borrowers (not private). Some specifics are still being announced, but here’s what we know so far:

How much is forgiven? 

The plan will forgive $10,000 in student loans for individuals making less than $125,000 per year or married families/heads of household making less than $250,000 per year.  

The total amount of loans forgiven for individuals who received a Pell Grant increases to $20,000. 

We still don’t know if all federal loans will be forgiven and what year the income limit will be based. 

How does the new IDR (Income Driven Repayment) plan work?

Not only does the percent of discretionary income drop from 10% (for most current plans) to 5%, the way they calculate discretionary income has changed. 

Under the old IDR forgiveness guidelines, the timeframe for forgiveness was 20 years. For borrowers with less than $12,000, the timeframe has dropped to 10. 

Under the new IDR plan, the borrower would not be responsible for any interest accrued while making IDR payments. Under current rules, loan balances can grow far beyond the original principal amount with IDR. 

We still don’t know how discretionary income will be calculated and how the new rules fit in exactly with all the different payment plans.

How do taxes work?

According to the announcement, there will be no federal taxes on the forgiven amounts of the $10,000/$20,000 program. But as of now, there does not appear to be any change to the IDR (Income Driven Repayment) forgiveness program(s); those are taxed at the federal and state level. Traditionally, IDR PSLF (Public Service Loan Forgiveness) is tax-free.


State tax treatment will vary with the new program. Currently, the state of MN will tax the forgiven amount for the $10,000/$20,000 program in addition to the IDR forgiveness program(s). 


How do I enroll in the program? 

Federal student loan providers should already have borrowers’ tax information, and loans may be forgiven automatically. The Department of Education is planning to roll out a formal application program for those who need it in the coming weeks. 

How long will loan payments continue to be paused? 

A final pause on student loan payments through December 31, 2022, was announced. 

How about private loans?

This loan forgiveness plan only covers federal student loans. 

How do I get more information?

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