New Student Loan Forgiveness Announced: Do You Qualify?

August 24, 2022
3 minutes

President Joe Biden unveiled his student loan forgiveness plan. So, what’s in it for you?

Student loan forgiveness amounts

President Biden approved student loan forgiveness at $10,000 and $20,000 levels.

Student loan forgiveness eligibility requirements

Eligibility is dependent on your income and the type of loans and grants you used during college.

Who is eligible for $10,000 in student loan forgiveness?

Borrowers who make less than $125,000 per year are eligible for $10,000 in student loan forgiveness.

Who is eligible for $20,000 in student loan forgiveness?

Borrowers who make less than $125,000 per year who used Pell Grants to attend college are eligible for $20,000 in student loan forgiveness.

Who is eligible for full loan balance forgiveness?

Borrowers who have made 10 years of payments are eligible for forgiveness if their loan balance is under $12,000. Previously, this was only an option after 20 years of repayment.

Additional perks for student loan borrowers

The new plan includes more than just loan balance forgiveness. Undergraduate federal student loan borrowers will be able to cap their student loan payments at 5% of their income.

For some borrowers, the 5% cap means that maximum payments won't cover the loan's monthly interest charges. To keep balances from growing, the forgiveness plan will also cover the borrower's unpaid monthly interest - even if the maximum monthly payment is $0 based on the borrower's income.

Did President Biden renew student loan payment deferments? 

Student loan payment freezes will continue until the end of 2022. However, President Biden noted that this will be the final payment freeze.

There is one "loophole" of sorts. Those earning less than 225% of the federal poverty limit (around $15/hour for a full time worker) will NOT have to make monthly payments.

How will student loan forgiveness impact your credit? 

A variety of factors come into play when it comes to student loans and your credit history. For many, a reduction in the amount owed will decrease their credit utilization ratio. 

This will likely have a positive impact on credit scores, as it will show lenders a lower level of debt and a higher likelihood that the borrower will be able to repay the amounts owed.

Learn more: How do Student Loans Affect Your Credit Score?

Building credit with student loan debt

Improving your credit score is easy, even when you have significant student loan debt. You just need the right tools. 

StellarFi helps you build credit just by paying your bills. There’s no credit check, no interest fees, and you’re approved no matter how much student loan debt you have.

The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.

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On-time payment history can have a positive impact on your credit score. Nonpayment may negatively impact your credit score. StellarFinance, Inc. will report your on-time payments to Experian®, Equifax® and TransUnion®. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.