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Tackling Student Loan Debt: Part 1

Updated: Apr 1, 2023

In this series, we will look at the growing crisis around student loan debt. How did we get here? What didn’t students likely know when they first filed for a loan? How does the new student debt forgiveness plan affect your loan balance? And how could your cash have been utilized in other ways?

Since President Biden is strongly encouraging applications by Nov. 15, we will begin this series by looking at the debt forgiveness plan first and who may qualify.

Comment below with additional questions!

Did you know that more than 44 million Americans have outstanding student loan debt?

Over the last 30 years, average tuition prices have more than doubled, increasing to $10,950 for a public four-year in-state institution and $39,400 for a private nonprofit four-year, according to the latest report by the College Board. In the meantime, wages haven’t kept up. More and more families are turning to federal and private aid to help foot the rising cost of college. Since 2008, student loan debt outstanding has only gone up, currently sitting at over $1.7 trillion (chart below).

With nearly no limit on the amount students can borrow, colleges and universities have an incentive to drive up tuition. After students hit their federal loan limits, they turn to parent student loans and private financing. And now, more and more students feel they need a graduate degree to stand out in a competitive job market. More school means more debt. Today, almost 40% of outstanding federal student loan debt is for post-bachelor’s degrees, i.e., master’s or PhD programs.

And now, Americans owe more in private student loans than medical debt or payday loans. The average loan balance has tripled since the 1990s, with around 7% of borrowers having more than $100,000 debt. Most recent graduates choose the lowest monthly payment, which almost doubles their repayment timeline. According to the Department of Education, it takes students an average of 17 years to pay off their education debt. This shift to “high-tuition, high-aid” has ballooned individual debt levels and created a financial crisis in and of itself.

In August, President Biden announced a $400 billion student debt forgiveness plan, one of his campaign promises. Since then, scams, controversy and a political power struggle have hindered any implementation. The Department of Education has set up an online application for student loan debt relief up to $20,000 at

Currently, the Department of Education has approved 16 million Americans’ requests, but another 10 million applicants are still awaiting approval. All 26 million applicants remain in limbo until the 8th Circuit Court of Appeals untangles the legal issues and many counter lawsuits filed opposing the plan's implementation. Justice Barrett has twice denied appeals for legal blocks to the proposed plan.

Regardless, applicants are encouraged to apply by the Nov. 15 deadline to be considered for debt relief, though technically borrowers have until the end of 2023 to file. The continued legal turmoil surrounding the loan forgiveness could continue for months, yet student loan payments are currently set to resume on Jan. 1, 2023.

Who qualifies for student loan forgiveness?

The application is pretty straightforward. Borrowers can get anywhere from $10,000 to $20,000 forgiven depending on their loan types and income restrictions. Pell grant recipients may qualify for the higher $20,000 loan cancellation, while most are only eligible for the lower amount. To be eligible, individuals must make less than $125,000 per year and married couples must earn less than $250,000 (according to tax filing status in 2021 or 2022).

The official application requires your name, SSN, DOB, phone number and email address. Borrowers must verify they qualify for forgiveness based on income restrictions. Then, submit the application for debt relief!

Applicants will receive an email confirmation from the Department of Education and should expect 4-6 weeks waiting time to see if they are approved. If approved, borrower’s loan servicer will let them know of any balance forgiveness.

With nearly no limit on the amount students can borrow, colleges and universities have an incentive to drive up tuition.

Loans that Qualify

There are several different loans that may qualify for debt forgiveness:

  • William D. Ford Federal Direct Loan (Direct Loan) Program loans

  • Federal Family Education Loans (FFEL) loans held by the Department of Education

  • Defaulted Education Department-held loans (including Parent PLUS and Graduate PLUS)

  • Defaulted commercial FFEL Program loans

  • Perkins Loans held by the Education Department

For borrowers with multiple loans under the same category, the Department of Education will apply relief in this order:

  • Loans with the highest interest rate

  • If interest rates are equal, unsubsidized loans will be forgiven before subsidized loans

  • If the interest rate and subsidy status are the same, the most recent loans will be forgiven

  • If interest rate, subsidy status, and disbursement date are the same, loans with the lowest combined principal and interest balance will be forgiven

Current students may also qualify for loan forgiveness as long as they meet the requirements. If a parent claims the student as a dependent, then eligibility for debt relief will be dependent on their income.

Biden’s student debt forgiveness plan could wipe out $400 billion in student loans, but… will Congress actually fund the plan? What does the student loan forgiveness mean for the overall economy? For inflation? For future fiscal health? We will look at that next time.

In the meantime, if you have student loans, go ahead and submit your application for debt relief. Better to be in line!

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