The decision whether to seek debt forgiveness can have serious consequences for taxes and credit standing. This article is not intended as legal advice for your specific circumstances and does not create an attorney-client relationship with Lexington Law.
Debt forgiveness occurs when a lender forgives either a portion of or the entire debt owed by a borrower from a loan or credit account.
Debt forgiveness occurs when a portion of a loan or the entire remaining amount of a loan or credit line is canceled, relieving the borrower from the obligation of repayment. Before moving forward with debt forgiveness, it’s important to consider the potential benefits and drawbacks so that you’re fully prepared.
It’s also important to note that debt forgiveness differs from debt relief, which involves reorganizing debt to facilitate repayment—but doesn’t cancel the debt.
Continue reading to learn more about debt forgiveness and explore different options that you may qualify for.
Debt forgiveness benefits
Debt forgiveness can provide relief to those who are struggling to make payments, and it has the following benefits:
You can avoid filing for bankruptcy: Debt forgiveness can prevent the need to file for bankruptcy, which would severely damage your credit for up to seven to 10 years.
You can pay less than your original obligation: While the amount you’ll pay varies depending on the program you choose, it is typically much less than the amount you originally owed.
You can pay your debts quicker: Through debt forgiveness, you can significantly reduce your debt in a much shorter time frame than you initially expected.
Debt forgiveness drawbacks
On the other hand, debt forgiveness has the following downsides that you should be aware of:
You may owe taxes on the amount that’s forgiven: In general, canceled debt is considered taxable income that you may be responsible to cover.
You could owe more than your original obligation: Many debt relief companies charge excessive fees that could equal or exceed the amount you originally owed. Additionally, it’s important to change your financial habits so you don’t continue to rack up debt.
Your credit may take a hit: Depending on the type of debt that’s forgiven, you could notice a negative effect on your credit. However, this will likely not be the case if the debt in question is student loans or medical bills.
Because of these drawbacks, you may want to consider other debt management options.
Debt forgiveness vs. debt consolidation
An alternative to debt forgiveness that you may want to consider is debt consolidation. While this method doesn’t cancel the debt, it can help you pay it off faster and accrue fewer interest charges.
One of the most common debt consolidation methods is a balance transfer, which involves moving debt to a new credit card that offers 0% APR for a few months. During this time, you can work to pay off your debt without racking up interest.
Other options include taking out a personal loan or home equity loan to pay off your debt. The strategy here is that your new loan would have a lower rate than that of your current debt, allowing you to save on interest
Just be wary of for-profit companies that promise debt relief via consolidation, as they’re often pricey. Instead, look to nonprofits such as the National Foundation for Credit Counseling.
How to get debt forgiveness
If you’re moving forward with debt forgiveness, you have a few options depending on loan type and your overall personal and financial situation.
Federal programs
One of the few ways to get true debt forgiveness without consequences is to see if you’re eligible for a special program. Typically, these are only offered for student loan debt and home mortgages:
Student loan forgiveness: In mid-2023, student loans totaled $1.7 trillion. To help alleviate this, the Public Service Loan Forgiveness (PSLF) program provides Direct Loan forgiveness for full-time workers of U.S.-based or non-profit organizations who have made 120 qualified monthly payments. Another type of student loan forgiveness is income-driven repayment plans, which forgive the remaining loan balance at the end of a repayment period. Thirdly, if you’re a teacher, you may be eligible for a Teacher Loan Forgiveness program.
Mortgage debt forgiveness: The Mortgage Forgiveness and Debt Relief Act, enacted in 2007, lets eligible borrowers exclude up to two million dollars in forgiven mortgage debt from their taxable income. This allows forgiven mortgage debt and foreclosure balances to be truly penalty-free.
You may be eligible for other federal programs to help manage debt. To explore your options further, the Federal Trade Commission has guidelines for getting out of debt.
Settlement
Settlement is by far the most common form of debt forgiveness. It’s the process of negotiating your debt to only repay a portion of your outstanding balance. The rest is forgiven, meaning repayment is not necessary.
Borrowers tend to choose debt settlement if they can’t afford expensive and persistent debt payments. They may also choose this route as an alternative to declaring bankruptcy, since debt settlement should only stay on your credit report for seven years.
However, it’s important to watch out for hefty fees from these companies. If hiring a debt settlement agent is beyond your means, keep in mind that negotiating on your own is an option. First, you’ll need to determine your outstanding balance and what monthly payment you can afford. Next, contact your creditor. You’ll need to explain why you can no longer afford the loan and then negotiate a lump sum. If they agree, ask for a written letter so you have legal proof of the settlement.
Statute of limitations
If you’re seeking debt forgiveness for credit card debt, you may be able to leverage the statute of limitations (SOL) in your state. The SOL is applicable once a certain amount of time has passed (typically three to 15 years depending on what state you live in) and your debt collector hasn’t pursued debt collection in court. After this time frame, they have no legal claim to your money, and they should no longer be able to successfully sue you to collect the debt. However, this approach is risky for a number of reasons.
SOL start to accrue after the date of last activity, which includes payments and charges. After your SOL expires, a lawsuit can still be filed against you—but you can use the SOL as a defense in court.
Bankruptcy
Filing for bankruptcy is an option and that decision will remain on your credit report from seven to ten years. That said, it may help forgive some of your debt.
If you file for Chapter 7 bankruptcy, your debt is forgiven and some of your assets remain with you subject to certain state and federal exemptions.
If you file for Chapter 13 bankruptcy, you’re still required to pay off your debts. However, the court will assign you a payment plan spanning anywhere from three to five years, and they may reduce your outstanding balance to lessen the financial burden.
What are the consequences of debt forgiveness?
After you have a portion of your debt forgiven, you may feel like you’re out of the woods—and for the most part, that’s true. However, there are a few circumstances you’ll need to be aware of so that you’re prepared for the effects debt forgiveness may have on your finances.
Taxes
No matter which debt forgiveness route you take (with the exception of bankruptcy), you’ll likely end up with a higher taxable income. If the amount of forgiven debt exceeds $600, you’ll receive a 1099-C form titled “Cancellation of Debt” from the creditor.
With this form, you report the amount of your forgiven debt to the IRS and pay income tax on it. When you first take out a loan or borrow money, you’re not charged taxes on it because there’s the assumption that you’ll pay it back. But after debt forgiveness, that assumption no longer applies, which is why this essentially “free money” is now considered taxable income.
The upside is that the income tax you owe on the forgiven debt amount is less than what you would have to pay if you still owed the debt. Make sure to plan for this expense so that it doesn’t surprise you, especially if the forgiven amount is sizable.
Consider contacting a qualified tax professional for help accurately filing your taxes. Then, once you properly report your debt forgiveness to the IRS, you’ll want to check your credit report.
Credit score
The unfortunate reality is that debt forgiveness may negatively affect your credit score. Of course, there is no way to say for sure. What will improve is your debt to income ratio. The effect to which debt forgiveness impacts your credit largely depends on how you choose to seek debt forgiveness.
Bankruptcy can be the most devastating option for your credit score. According to Debt.org, a FICO score of 780 could take a 240-point dip, and a score of 680 could take a hit of 130 – 150 points. If your credit score is much lower than 680, you may not see as large of a dip. However, if you have no late payments or charge off on your credit report prior to filing bankruptcy, your score dip is far less.
Debt forgiveness provides a much-needed solution for borrowers struggling to make payments. However, it also comes with conditions. When considering which debt management plan is right for you, a little careful planning can go a long way.
If overwhelming debt has caused your credit to dip below where you’d like it to be, see if we could help. We can take a look at your credit report and assist you with moving forward.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
The Internal Revenue Service (IRS) generally requires that you report a forgiven or canceled debt as income for tax purposes. But forgiven student loan debt is different.
The American Rescue Plan (ARP) Act specifies that student loan debt discharged between 2021 and 2025, and incurred for postsecondary education expenses, will not be counted as income, and therefore does not incur a federal tax liability.
This includes federal Direct Loans, Family Federal Education Loans (FFEL), Perkins Loans, and federal consolidation loans. Additionally, non-federal loans such as state education loans, institutional loans direct from colleges and universities, and even private student loans also qualify.
However, some states have indicated that they still count canceled student loans as taxable income. Read on for more information about which discharged student debt is taxable and by whom.
Different Student Loan Forgiveness Programs
Federal student debt can be canceled via an income-driven repayment plan (IDR) or forgiveness programs.
While President Joe Biden’s plan to offer federal debt cancellation of up to $20,000 to those with qualifying income failed — struck down by the U.S. Supreme Court — other forms of student loan forgiveness have been strengthened.
In October 2023, the White House announced at least $127 billion in student loan relief for nearly 3.6 million Americans:
• $5.2 billion in additional debt relief for 53,000 borrowers under Public Service Loan Forgiveness programs.
• Nearly $2.8 billion in new debt relief for nearly 51,000 borrowers through fixes to income-driven repayment. These are borrowers who made 20 years or more of payments but never got the relief they were entitled to.
• $1.2 billion for nearly 22,000 borrowers who have a total or permanent disability who have been identified and approved for discharge through a data match with the Social Security Administration.
Recommended: Guide to Student Loan Forgiveness
Whose Student Loan Cancellation Is Not Federally Taxed?
As stated earlier, under the provisions of the ARP Act, any student debt (private or federal) for post-secondary education that was or is forgiven in the years of 2021 through 2025 will not be federally taxed. This means that the borrowers just listed above were not required to report their discharged loan amount as earned income, and therefore taxable.
Outside of the special five-year window of tax exemption provided by the ARP Act, participants in the Public Service Federal Loan program who receive forgiveness also don’t have to worry about paying taxes on the canceled amount. The program explicitly states that earned forgiveness through PSLF is not considered taxable income.
Recommended: A Look Into the Public Service Loan Forgiveness Program
Whose Student Loan Cancellation Is Federally Taxed?
Borrowers who receive loan cancellation after participating fully in an income-driven loan repayment plan can generally expect to pay taxes. Again, those whose debt was discharged in 2021 and 2022, or will be discharged in 2023, 2024, or 2025, will not need to pay federal taxes on their forgiven loans.
Forgiven amounts that are taxable are treated as earned income during the fiscal year it was received. Your lender might issue tax Form 1099-C to denote your debt cancellation. 💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.
Which States Have Said They Will Tax Forgiven Student Loans?
Typically, states follow the tax policy of the federal government. But some states have announced that their residents must include their forgiven or canceled student loan amount on their state tax returns.
As of October 2023, the states that say forgiven loans are taxable are Mississippi, North Carolina, Indiana, Wisconsin, and possibly Arkansas, depending on an upcoming vote in its legislature. More states could decide to do so.
It’s important to consult a qualified tax accountant or someone knowledgeable about forgiveness of student loans in your state to confirm the latest information of how much you owe.
Preparing to Pay Discharged Student Loan Taxes
If you’re anticipating a tax liability after receiving loan forgiveness, there are a few steps you can take today to get ready.
Step 1: Estimate Your Bill
The first step when bracing for a student loan forgiveness tax bill is calculating how much you might owe come tax season. This factor can be influenced by factors including the type of forgiveness you are receiving and the forgiven amount.
To avoid sticker shock, you can use a student loan forgiveness tax calculator, like the Loan Simulator on StudentAid.gov. It lets you see how much of your student loan debt might be forgiven, based on your projected earnings.
Step 2: Choose the Right Plan
Enrolling your federal student loans into an IDR plan can help you keep your monthly payments to a manageable amount while you’re awaiting loan forgiveness. All of these repayment plans calculate your monthly payment based on your income and family size.
The newest IDR program is the Saving on a Valuable Education (SAVE) plan, which offers unique benefits that will lower payments for many borrowers, to as low as 5% of disposable income in 2024 for those who qualify.
Recommended: The SAVE Plan: What Student Loan Borrowers Need to Know
Step 3: Prioritize Saving
If you’re expecting loan forgiveness after 2025, it might be advantageous to allocate extra cash flow toward a dedicated tax savings fund. Incrementally setting money aside over multiple years can ease the burden of a sudden lump sum tax bill down the line.
Paying Taxes on Canceled Student Loan
If you can’t afford to cover an increased tax bill, contact the IRS to discuss your options. Inquire about payment plans that can help you pay smaller tax payments over a longer period of time. However, be aware that fees and interest will likely accrue. 💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.
The Takeaway
Thanks to a special law passed by Congress in 2021, post-secondary education loans forgiven from 2021 through 2025 will not count as earned income and will not be federally taxed. That said, state taxes may be due, depending on where the borrower lives.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Is loan repayment considered taxable income?
If your employer offers loan repayment assistance benefits, they would typically be considered taxable income. However under the Cares Act, loan forgiveness payments — and employer assistance loan payments up to $5,250 — made each year from 2021 through 2025 are tax-free.
Will refinancing my student loans help me avoid taxes?
Student loan refinancing simply involves reworking one or more existing student loans into a new private loan with more favorable terms. It’s a repayment strategy that does not incur a tax liability.
Photo credit: iStock/fizkes
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Editor’s Note: On June 30, 2023, the Supreme Court announced its decision to reject the Biden-Harris Administration’s Student Debt Relief Program on the grounds that it required Congressional approval. Previously, it was announced that interest accrual on federal student loans will resume on Sept. 1, while loan payments will be due starting in October. Borrowers will learn their new monthly payment amount and due date at least 21 days in advance.
After graduation and your six-month federal student loan grace period, it’ll be time to start paying your dues. If you are on the Standard Repayment Plan, you’ll pay at least $50 a month for 10 years. But there are other ways to pay back your student loans: through income-driven repayment plans.
Not all of these plans have the same repayment strategy, and not all federal loans qualify for income-driven repayment. We’ll help you find the one that aligns with your financial situation before you commit.
How Does Income-Driven Repayment Work?
The U.S. Department of Education offers four income-driven repayment (IDR) plans for holders of federal student loans:
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)
• Pay As You Earn (PAYE) Plan
• Saving on a Valuable Education (SAVE) Plan
For most IDR plans, your monthly payment is calculated as a portion of your discretionary income. The Department of Education defines discretionary income as your adjusted gross income in excess of a protected amount.
Discretionary income under the SAVE Plan, for example, is any adjusted gross income you have above 225% of the federal poverty guideline appropriate to your family size. You’ll have a $0 monthly payment under the SAVE Plan if your annual income doesn’t exceed the protected amount of $32,805 for a single borrower and $67,500 for a family of four in 2023.
If you don’t qualify for a $0 monthly payment on the SAVE Plan, your monthly payment beginning in July 2024 will be set at 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average if you have both.
On the IBR plan, your monthly payment is typically set at 10% to 15% of your discretionary income above 150% of the federal poverty guideline appropriate to your family size. But unlike the SAVE Plan, a borrower’s monthly payment on the IBR plan will never be more than what you would have paid through the Standard Repayment Plan.
IDR Loan Forgiveness
All federal IDR plans can end with your remaining loan balance being forgiven after 20 or 25 years, but some borrowers may receive forgiveness sooner under the SAVE Plan. Beginning in July 2024, federal student loan borrowers with original principal balances of less than $12,000 can have their remaining loan balance forgiven after 10 years of monthly qualifying payments on the SAVE Plan.
For more details on federal IDR debt relief benefits, check out our Guide to Student Loan Forgiveness.
Your personal circumstances and goals may dictate which student loan repayment plan is right for you. You can estimate how much your monthly payments will be through the federal Loan Simulator calculator. 💡 Quick Tip: Ready to refinance your student loan? You could save thousands.
The Difference Between Income-Driven Repayment Plans
Deciding which IDR plan is right for you (and that you may qualify for) depends on your financial situation and your loan type(s). Here’s what they all mean:
• IBR (Income-Based Repayment). This plan is based on your income and family size. The potential IBR payment must be less than what you would pay under the Standard Repayment Plan to qualify. Any remaining balance is forgiven after 20 or 25 years.
• ICR (Income-Contingent Repayment). Under this plan, your monthly payment is adjusted based on your income (sometimes set at 20% of your discretionary income above 100% of the federal poverty guideline appropriate to your family size). It might not lower your payments as much as other plans, but it’s the only IDR plan that allows Parent PLUS Loans. Any remaining balance is forgiven after 25 years.
• PAYE (Pay As You Earn). With this plan, you’ll never pay more than the fixed Standard Repayment Plan amount. Payments are typically set at 10% of your discretionary income above 150% of the federal poverty guideline appropriate to your family size. Any remaining balance after 20 years of payments is forgiven.
• SAVE (Saving on a Valuable Education). This IDR plan replaced the former REPAYE Plan. Anyone with qualifying student loans can enroll into the SAVE Plan. However, you could end up paying more per month under this plan than the Standard Repayment Plan. You’ll have a $0 monthly payment under the SAVE Plan if your annual income falls below 225% of the federal poverty guideline appropriate to your family size.
Alternatives to Income-Driven Repayment Plans
The 2023 debt ceiling bill officially ended the three-year Covid-19 forbearance, requiring federal student loan interest accrual to resume on Sept. 1, 2023, and payments to resume in October 2023.
Aside from the Standard Repayment Plan, there are a few options to consider instead of IDR:
Consolidation
If you have federal student loans, you can get a Direct Consolidation Loan. This will move all your eligible federal student loans into one monthly payment. Your new interest rate is the weighted average of all your loans, rounded up to the nearest eighth of a percent.
This can be helpful if you have many smaller loans that each have a minimum monthly payment. It typically won’t lower your monthly payment, however, but it can make it manageable and easier to keep track of. Only federal loans are eligible for a Direct Consolidation Loan.
Refinancing
Refinancing is similar to consolidation. You get one loan to replace all of your other loans, but it’s a new loan with a new interest rate from a private lender or bank. Your credit report and other personal financial factors are considered to see if you’re a responsible borrower. If you previously had a co-borrower, such as a parent, you can look into refinancing without a cosigner.
Many lenders allow you to refinance all of your student loans, not just federal student loans. So if you have a mix of private student loans and federal student loans, refinancing will create one new loan with one payment to replace them.
If you qualify for a lower interest rate and a shorter term, it could reduce the amount of money paid in interest over the life of the loan. You may pay more interest over the life of the loan if you refinance with an extended term. You can explore different scenarios with our Student Loan Refinance Calculator.
You may ask, “Should I refinance my federal student loans?” Refinancing federal student loans with a private lender forfeits your access to Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and federal IDR plans. You can weigh the pros and cons when determining whether student loan refinancing is right for you. 💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.
How Do You Calculate Income for an Income-Driven Plan?
The Department of Education considers three different components when calculating a borrower’s income. While this may seem needlessly complicated, it actually benefits borrowers:
Annual Income
Any income that’s taxable counts toward the Education Department’s calculation. That means regular wages, plus interest and dividends from savings and investments, unemployment benefits, etc. On the flip side, any income that isn’t taxed doesn’t count: gifts and inheritances, cash rebates from retailers, child support payments, and so on.
Spouse’s Income
If you and your spouse file a joint tax return, then their income must also be factored in. If you file separately, only your income counts.
Family Size
Your family size is the number of people who live with you and receive more than half their support from you. This includes children but also dependent adults, such as an older parent.
The Takeaway
There are four income-driven repayment plans for federal student loan holders, including IBR, ICR, PAYE, and SAVE. No new PAYE enrollments will occur after July 1, 2024, although current PAYE enrollees can remain on the plan after that date.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income based repayment plans or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
When it comes to higher education, Native Americans face obstacles. Educationdata.org says that postsecondary attendance among American Indian and Alaska Native students “has been in decline since 2010.” Only 0.7% of college students identified as American Indian or Alaska Native in 2022.
“Research has found that American Indians and Alaska Natives have a much lower rate of college completion than the population as a whole,” the Department of Education’s (DOE) Federal Student Aid (FSA) says on its website.
The soaring cost of college could have something to do with this: The average annual cost of tuition at a public 4-year college is 23 times higher than in 1963. The average cost of college for in-state students at a four-year institution in 2022-23 was almost $11K. Students at private nonprofit four-year institutions paid over $39K on average.
According to the DOE, loan forgiveness (or cancellation) is generally the term used if you are no longer required to make payments on some or all of your student loans.
While there are some specific programs to help with Native American student loan forgiveness, it’s important to also research what financial aid, including scholarships and loans, is targeted toward American Indians and Alaska Natives.
Recommended: Student Loan Forgiveness: Programs for Relief and Mass Forgiveness
Picking a Career With Loan Forgiveness
One very important resource: The Bureau of Indian Education provides a list of scholarships and grants available to Native American students, such as the American Indian College Fund.
Many states offer financial aid to Native American students attending college. Some individual colleges and state schools also offer free tuition and room and board to Native American students. For instance, Native American students who are Montana residents can qualify for a tuition waiver at Montana State University.
Keeping a career in mind when pursuing an education can make a big difference in financial aid and forgiveness options. 💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.
Health Services
One of the programs that gives priority to Native Americans is the Indian Health Services Loan Repayment Program. This program, part of the U.S. Department of Health and Human Services, provides funds for health professionals to help repay eligible education loans.
In 2023, the program announced an increase in the maximum annual award amount to $25,000 per year for new awards and extensions starting in Fiscal Year 2023. You can find details about the new award amount here.
In exchange, health professionals agree to an initial two-year service commitment practicing in areas that serve American Indian and Alaska Native communities.
Priority enrollment in this program is given to American Indians and Alaska Natives. Professions across the healthcare spectrum, including behavioral health, dentistry, and dietetics, are available.
The organization says that available opportunities are based on the greatest staffing needs in Native American health facilities. Participants are also eligible to extend their contracts annually until their qualifying student debt is paid.
Public Service Loan Forgiveness
This program, offered by the DOE, is open to all qualified students, not just Native Americans. The careers that may qualify for Public Student Loan Forgiveness Program (PSLF) range from forestry and natural resources to teaching and law enforcement.
To receive loan forgiveness for work in public service, applicants must work full-time for a qualifying government agency or certain nonprofits. After 120 on-time, qualifying payments in an income-driven repayment (IDR) plan, the remainder of the student debt can be forgiven.
The Department of Federal Student Aid offers a PSLF Help Tool to start work on the Employment Certification Form to apply.
Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the program. Loans that may be eligible to be forgiven under PSLF include any non-defaulted loans that you received under the Direct Loan Program from the government. Private loans are not eligible for any federal forgiveness plans.
Recommended: A Look Into the Public Service Loan Forgiveness Program
Teacher Loan Forgiveness Program
For students interested in pursuing a career in teaching, the DOE’s Teacher Loan Forgiveness Program is key. If you teach full-time for five years straight in a low-income school or educational service agency, you might be eligible for up to $17,500 for certain subject areas.
Even if you don’t teach math, science, or special education, you could still receive up to $5,000 in loan forgiveness if you are a qualified full-time elementary or secondary education teacher.
This might be another option for Native American students looking for student loan debt forgiveness by giving back to a community in need.
To qualify, the school or educational agency must be listed in the directory, published by the DOE, for the years you were/are a teacher. 💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to career services, financial advisors, networking events, and more — at no extra cost.
Lowering Your Student Loan Payments
While student loan forgiveness is often a great solution for debt relief, sometimes you might not qualify for career-based programs. One solution is income-driven relief (IDR) for federal student loans.
The Saving on a Valuable Education (SAVE) Plan is the newest income-driven repayment plan. Like other IDR plans, the SAVE Plan calculates your monthly payment amount based on your income and family size. In addition, the SAVE Plan has unique benefits that will lower payments for many borrowers.
The SAVE Plan lowers payments for almost all people compared to other IDR plans because your payments are based on a smaller portion of your adjusted gross income (AGI). Your payment for federal undergraduate loans could be as low as 10% of your discretionary income -– and that percentage could decrease to 5% in 2024.
The SAVE Plan has an interest benefit: If you make your full monthly payment, but it is not enough to cover the accrued monthly interest, the government covers the rest of the interest that accrued that month. This means that the SAVE Plan prevents your balance from growing due to unpaid interest.
Recommended: The SAVE Plan: What Student Loan Borrowers Need to Know About the New Repayment Program
Refinancing Student Loans
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance NOTICE: The debt ceiling legislation passed on June 2, 2023, codifies into law that federal student loan borrowers will be reentering repayment. The US Department of Education or your student loan servicer, or lender if you have FFEL loans, will notify you directly when your payments will resume For more information, please go to https://docs.house.gov/billsthisweek/20230529/BILLS-118hrPIH-fiscalresponsibility.pdf https://studentaid.gov/announcements-events/covid-19
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income based repayment plans or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
These days, a college education is considered a luxury for many American families. For the 2022-23 school year, a full-time student can expect the sticker price on a public, four-year, in-state school to be $10,950, according to the College Board’s 2022 Trends in College Pricing report . That’s $190 higher than the previous year, or an increase of 1.8% before adjusting for inflation.
For a private non-profit university, the annual cost jumps to $39,400, an increase of $1,330 over the previous year.
Multiply that by four years, add out-of-state or private school tuition, or pursue an advanced degree, and it’s easy to see why so many students and their parents have to borrow money to cover the cost of tuition and related school expenses. In fact, 43.6 million borrowers have federal student loans, which equates to 93% of all student loan debt.
You might be one of them, or have a family member or close friend who is. But how much do you really know about student debt? After all, it can rank right up there with politics and religion on the list of topics that no one wants to bring up.
Any idea which states have the highest student loan balances? Or how much Americans owe in total on their student loans? What about how common it is for people to stop making payments?
We’ve gathered those answers and more, and the numbers may surprise you. Because whether you see it as a private struggle or a national crisis, student loan debt is a big deal.
1. Americans currently owe over $1.7 trillion on their student loans.
That was the cumulative student loan balance among American consumers as of August 2023. A decade ago, that figure was closer to $1.1 trillion. Student loans are now the largest form of consumer debt in the U.S. other than mortgages — exceeding car loans and credit card debt.
Want some good news? This debt crisis has been getting some attention. Though the Biden administration was unsuccessful in implementing a nationwide student loan forgiveness program (at least for now), it has forgiven more than $116 billion in student loan debt via more targeted forgiveness initiatives. It has also made improvements to how payments toward forgiveness under income-driven repayment (IDR) and the Public Service Loan Forgiveness (PSLF) program are counted. Plus, it implemented a new, improved IDR program known as Saving on a Valuable Education (SAVE). 💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
2. The average student loan balance is more than $37,000.
The average federal student loan borrower today owes $37,718. .Borrowers with private loans owe even more: as high as $40,449, on average.
When divided up by generation, Baby Boomers carry the highest average balance at $45,136. Gen Xers come in second, with balances averaging $43,438. Millennials have the next-highest average balance of $33,173, followed by Gen Z with $14,315.
3. Individual debts vary widely.
The average debt is just that — the average. Recent figures show that student loan balances are as varied as age, state and program statistics. Total balances can range from less than $1,000 to more than $200,000, depending on the borrower.
This may not come as a surprise when compared to the total costs of attending college. For the 2022-23 school year, Kenyon College in Ohio topped the list of most expensive schools at $66,490 a year for tuition and fees, according to U.S. News and World Report . On the other hand, a handful of schools, including Berea College in Kentucky and College of the Ozarks in Missouri, offer free college tuition to students who qualify.
4. Current student debt varies widely by state and college.
While not technically a state, Washington, D.C. topped the list of states with the highest student debt, with an average of $54,945 — more than $12,000 higher than the next-highest state, Maryland, which averaged $42,861. The bottom of the list (or perhaps the top, depending on your point of view), includes North Dakota, South Dakota, and Iowa, all with less than $31,000.
Likewise, the program students pursue can have a huge impact on the amount of student debt facing graduates. The cost of graduate school can vary widely by program. Specialized degrees — medicine, law, or pharmacy, for example — could leave students facing even higher debt burdens, sometimes upwards of $100,000.
5. Student loan debt disproportionately impacts women and borrowers of color.
Student loan debt can have a number of devastating consequences for borrowers of all backgrounds. It’s shown to make major life milestones such as buying a home and starting a family less attainable. And for those who can’t afford their payments, student loan default can wreak havoc on their credit and overall finances.
However, certain borrowers are disproportionately burdened by student loan debt. For instance, Black college graduates owe an average of $25,000 more in student loan debt than white college graduates. And four years after graduation, Black students owe an average of 188% more than what white students borrowed.
Additionally, Hispanic and Latino borrowers were the most likely to delay getting married and having children due to student loan debt.
Further, 64% of student loan debt is held by women, with the highest average amount of debt belonging to Black women.
6. Americans with student debt are likely to have multiple loans.
The Department of Education currently contracts a few different loan servicers . The federal student loan will be assigned to a loan servicer when it is disbursed. For borrowers with multiple student loans, it is possible that they’d have multiple loan servicers. That could be a lot to juggle, and one reason borrowers may consider federal student loan consolidation.
7. The number of borrowers defaulting on their student loans is in the seven figures.
As of 2023, one out of every 10 Americans has defaulted on a student loan, and 5% of all student loan debt is currently in default. About 4 million student loans enter default each year.
Risk factors for student loan default can include having other forms of debt, such as a credit card balance, car payment, or mortgage. And defaulting on loans can also put borrowers at risk for having other bills, such as medical expenses, end up in collections as well.
What’s to be done? Even if you just stop paying on your student loans, they won’t go away (though the new SAVE Plan can bring your payment down to $0 if your income is low enough, and may eventually lead to forgiveness if your income remains low.) And in the meantime, interest will continue to accrue and, in some cases, capitalize (along with penalties and other downsides to nonpayment, like being sent to collections).
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Student Loan Refinancing If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
There are several options for teachers seeking to reduce their federal student loan debt, including loan forgiveness and cancellation. For example, teachers may qualify for the Teacher Loan Forgiveness program, Public Service Loan Forgiveness program (PSLF), and/or the Perkins Loan Cancellation for Teachers. Also, there are state and local loan forgiveness, cancellation, and grant programs. We’ll discuss these options in more depth below.
Teacher Loan Forgiveness Program
Amount forgiven:
Up to $5,000 or up to $17,500, depending on the subject area you teach.
Which loans might qualify:
Direct (or Stafford) Loans, both subsidized and unsubsidized, and FFEL Program Loans. For borrowers with Direct Consolidation Loans, the outstanding portion of the consolidation loan that repaid an eligible Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford Loan, or Unsubsidized Federal Stafford Loan may qualify as well. Learn more here .
Qualifications:
• Teaching at a low-income school; you can search for a school in this directory
• Teaching for five complete and consecutive academic years
• Existing student loans cannot be in default
Details:
The maximum amount that can be forgiven under this program depends on the role and subject the borrower teaches. Teachers are eligible to receive up to $17,500, if they are considered “highly qualified” as defined by the program and are full-time math or science teachers in an eligible school. Teachers working in special education that meet specific requirements may also qualify to have $17,500 forgiven.
Teachers are eligible to receive up to $5,000 if they are a “highly qualified” full-time elementary teacher or a full-time secondary school teacher in all other subject areas.
What does “highly qualified” mean? That the borrower has a bachelor’s degree, full state certification as a teacher, and their certification or licensure requirements were not waived on an emergency, temporary, or provisional basis.
If you apply for Teacher Loan Forgiveness, you can’t also apply for Public Service Loan Forgiveness (PSLF) for the same period. So if you receive Teacher Loan Forgiveness, the five-year period of service that supported your eligibility will not count toward PSLF.
How to apply:
Teachers are not eligible to apply until they have completed the five years of service. After completing this requirement, borrowers can fill out the Teacher Loan Forgiveness Application. (It may be helpful to get acquainted with the application now, because it clearly explains who qualifies for what amount of forgiveness.) 💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
Public Service Loan Forgiveness Program
Amount forgiven:
Up to 100% of the remaining loan balance.
Which loans qualify:
Direct Loans, also known as Stafford Loans, and Direct Consolidation Loans.
Qualifications:
• Must be in certain public sector jobs and employed full-time
• Must have made 120 qualifying payments (this takes 10 years if the borrower makes them consecutively)
• Payments must be made as part of an income-driven repayment plan
• Existing student loans cannot be in default
Details:
Unlike with the Teacher Loan Forgiveness Application , teachers don’t need to teach for a low-income school or within a particular academic subject when applying for the Public Service Loan Forgiveness Program (PSLF).
To be eligible for this program, the borrower must be employed by the local, state, or federal government, or work for certain nonprofit organizations that provide a qualifying public service — such as general education services.
To qualify for PSLF, borrowers must be on an income-driven repayment plan. With an income-driven repayment plan , borrowers are only required to pay a certain percentage (between 10 and 20%) of their discretionary income toward their monthly student loan payments.
Recommended: A Look into the Public Service Loan Forgiveness Program
Sometimes, there is confusion about whether forgiven loan balances are taxed. If a borrower meets the qualifications for PSLF, the forgiven amount will not be taxed. For borrowers who are on an income-driven repayment plan and expect their loans to be forgiven after 20 or 25 years (but are not participating in the PSLF program), it is possible that the forgiven amount will be taxed as income. To understand more about these tax nuances, consult a licensed tax advisor.
To qualify for PSLF, the 120 qualifying monthly payments do not need to be consecutive. For example, if a borrower has a period of employment with a non-qualifying employer, they will not lose credit for any prior qualifying payments made with a PSLF-approved employer.
While it is possible to partake in both the Teacher Loan Forgiveness Program and PSLF, it’s not possible to do so concurrently. Your five years of service under the Teacher Loan Forgiveness Program does not count toward your qualification for PSLF — you will have to qualify for PSLF under a different period of teaching service. Furthermore, payments made when working toward the Teacher Loan Cancellation Program will not qualify for PSLF — you will have to make 120 additional qualifying payments for the PSLF program.
To apply:
Borrowers may want to fill out the Public Service Loan Forgiveness (PSLF) form with the PSLF Help Tool to be certain that their employment qualifies for the program. Once received by the Department of Education, the borrower will receive a response telling them whether or not they qualify, and if they don’t, what needs to be done to qualify. If the borrower does qualify, the DoE will tell them how many qualifying payments have already been made and how many need to be made.
Every time a borrower changes jobs, they’ll need to send in an updated Employment Certification form. Otherwise, borrowers will be required to submit an Employment Certification form for each of their previous employers when they apply for forgiveness.
Once a borrower has received notification that their PSLF Employment Certification has been approved, they’ll need to continue making those on-time student loan payments. After making 120 payments, they can apply for forgiveness.
Perkins Loans Cancellation for Teachers
Amount forgiven:
Up to 100% of the loan, done in increments over a five-year period.
Which loans qualify:
Federal Perkins Loans (The Federal Perkins Loan program expired in September 2017, but loans disbursed through the program may still qualify.)
Qualifications:
A minimum one year of teaching and at least one of the following requirements:
• Teaching at a low-income school; search for a school in this directory
• Teaching science, math, foreign languages, bilingual studies, or special education
• Teaching a subject that has a shortage of qualified teachers in your state
• Teaching in a school operated by the Bureau of Indian Affairs or on a qualifying Indian reservation
Details:
Those who are eligible for the Perkins Loans Cancellation for Teachers may have all of their Perkins Loans forgiven. Cancellation happens in stair-step increments over five years. Here’s how the incremental forgiveness system works:
• 15% of the original Perkins loan balance is canceled per year for the first and second years of service
• 20% is canceled in both the third and fourth years
• 30% is canceled in the fifth year
In order to qualify for this program, an employee must work directly for the school system — qualifying is entirely contingent on position duties.
To apply:
Each school has its own process, so borrowers should contact the school that administered the Perkins Loan.
State and Local Student Loan Forgiveness Programs
Some states offer loan forgiveness programs for teachers, especially for those who work in subject areas in high demand. One place to start your search for a state and local teacher loan forgiveness program is through this database created by the American Federation of Teachers.
What About My Other Student Loans?
So far, all of the programs we’ve discussed only apply to federal loans. What can be done if a borrower has other loans (like private loans) that don’t qualify for federal teacher loan forgiveness?
One option is to look into refinancing the student loans. When a borrower refinances a student loan or multiple loans, they are essentially paying those loans off with a new loan from a new lender. Ideally, the new loan has a more competitive interest rate than the existing loan(s), which could potentially save the borrower money over the life of the loan.
Borrowers can refinance both private and federal student loans, so it is an option for teachers who don’t have loans that qualify for one of the federal forgiveness or cancellation programs.
If you refinance your federal loans, you will lose access to federal loan benefits such as access to the PSLF program and the Teacher Loan Cancellation Program. There’s always the option to refinance your private loans while keeping your federal loans separate.
The Takeaway
Teachers with federal student loans may be able to pursue loan forgiveness through programs like Teacher Loan Forgiveness or Public Service Loan Forgiveness programs. Borrowers who hold Perkins Loans may also be able to pursue Perkins Loan Cancellation for Teachers. If you also have private loans, refinancing may be a good option, though as stated above, refinancing federal loans disqualifies borrowers from government forgiveness programs.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Student Loan Refinancing If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
At the end of 2022, the Federal Reserve reported that roughly 43.5 million Americans have student loan debt, which totals over $1.7 trillion. Each borrower owes an average of $37,787.
If you owe tens of thousands of dollars in student loan debt, you’re not alone. According to the Federal Reserve’s Consumer Credit report, 43.5 million Americans have some form of federal or private student loan debt. That’s 13 percent of the population. Not only can you not declare bankruptcy on many forms of student loan debt, but it can also harm your credit.
Here, we’re going to help you better understand the student loan debt dilemma that millions of Americans are facing. We’ll cover both federal and private student loan statistics, which states have the most student loan debt as well as delinquency rates. This will help you see where you stand in comparison to others in a similar situation.
Table of contents:
Average student loan debt
How many Americans have student loan debt?
Student loan debt by state
Total federal student loan debt
Total private student loan debt
Average student loan debt by age group
Student loan repayment status
Student loan default and delinquency rates
Student loan debt forgiveness
Student loan debt FAQ
Average student loan debt
The Education Data initiative is a primary source for tracking data on student loan debt and other educational statistics. In a January 2023 report, their analysis showed that the average debt per borrower was over $37,000 for federal student loans and nearly $55,000 for private loans.
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Student loan debt has reached new highs in recent years and has been rising since 2007. Less than 20 years ago, the average student loan debt per borrower was just $18,200. This means that by 2022, we saw a 106 percent increase.
Here’s some more interesting data from their report:
Those with a medical degree have an average student loan debt of over $300,000
The least amount of student loan debt is those with a Master of Education, which is $67,500
Stafford loan borrowers owe $25,249 on average
10 percent of borrowers owe more than $100,000 and 45 percent owe less than $20,000
How many Americans have student loan debt?
Over 43 million Americans have student loan debt. The following table from the U.S. Department of Education shows how many Americans have debt by federal loan type.
Year (Q4)
Direct loans (in millions)
Federal Family Education Loans (FFEL) (in millions)
Perkins loans (in millions)
Total (in millions)
2018
34.2
13.5
2.3
42.9
2019
35.1
12.1
2.0
42.9
2020
35.9
11
1.7
42.9
2021
37
10.2
1.5
43.4
2022
37.8
9.2
1.3
43.5
Source: U.S. Department of Education
As you can see, more people are accumulating different types of federal student loans, with a one-and-a-half percent increase in recipients between 2018 and 2022.
Student loan debt by state
The Federal Reserve Bank of New York tracks student loan debt by state. Below, we’ve provided a chart with each state listed in alphabetical order.
The state with the lowest average student loan debt per borrower as of the fourth quarter in 2021 is South Dakota, where borrowers owe an average of $28,218. The District of Columbia has the highest average owed per borrower at $53,769, which is nearly $16,000 higher than the national average.
State
Average balance
Alabama
$37,730
Alaska
$30,427
Arizona
$36,682
Arkansas
$31,851
California
$37,783
Colorado
$37,235
Connecticut
$36,391
Delaware
$39,238
District of Columbia
$53,769
Florida
$38,653
Georgia
$41,826
Hawaii
$34,608
Idaho
$34,196
Illinois
$37,869
Indiana
$32,045
Iowa
$29,845
Kansas
$33,954
Kentucky
$33,155
Louisiana
$34,839
Maine
$33,584
Maryland
$42,543
Massachusetts
$35,400
Michigan
$36,221
Minnesota
$33,161
Mississippi
$36,366
Missouri
$35,095
Montana
$32,459
Nebraska
$31,551
Nevada
$35,688
New Hampshire
$33,094
New Jersey
$37,003
New Mexico
$32,944
New York
$38,668
North Carolina
$37,511
North Dakota
$30,542
Ohio
$35,806
Oklahoma
$32,102
Oregon
$38,248
Pennsylvania
$35,349
Rhode Island
$33,838
South Carolina
$36,698
South Dakota
$28,218
Tennessee
$36,155
Texas
$32,998
Utah
$33,474
Vermont
$34,595
Virginia
$39,001
Washington
$34,846
West Virginia
$32,214
Wisconsin
$31,482
Wyoming
$30,581
States with the most student loan borrowers
The Federal Reserve Bank of New York also tracks how many borrowers there are per state. This gives us a good sense of how many individuals are seeking college degrees, but we should also keep in mind that the cost of living varies in different states as well as how much there is for state funding.
State
Total borrowers
California
4,021,200
Texas
3,759,300
Florida
2,646,400
New York
2,579,600
Pennsylvania
2,032,400
Ohio
1,810,900
Illinois
1,713,900
Georgia
1,641,600
Michigan
1,430,900
North Carolina
1,340,500
New Jersey
1,339,800
Virginia
1,143,200
Massachusetts
1,046,800
Indiana
924,000
Minnesota
902,500
Arizona
872,600
Tennessee
872,000
Maryland
864,700
Missouri
829,100
Washington
816,900
Colorado
804,300
Wisconsin
785,600
South Carolina
745,500
Louisiana
644,600
Alabama
615,800
Kentucky
588,800
Oregon
556,000
Connecticut
542,800
Oklahoma
480,800
Iowa
465,500
Mississippi
414,300
Kansas
395,200
Arkansas
374,900
Nevada
351,300
Utah
325,100
Nebraska
261,000
Idaho
219,400
New Hampshire
219,000
West Virginia
217,200
New Mexico
215,500
Maine
203,200
Rhode Island
153,200
Delaware
137,300
South Dakota
135,600
Montana
132,900
District of Columbia
125,000
Hawaii
123,600
North Dakota
114,000
Vermont
96,300
Alaska
70,600
Wyoming
57,600
States with the highest delinquency rates per borrower
As stated by the U.S. Department of Education, a student loan payment is considered delinquent the first day after missing a payment. If the payment goes unpaid for at least 270 days, the loan then goes into default.
The following are some consequences of going into default:
The entirety of the loan and the interest is due immediately
You lose the ability to obtain additional federal student aid
It will harm your credit score
The state with the highest borrower delinquency rate, `per the Federal Reserve of New York, is Maryland at a rate of 11 percent. This is followed by the state of Washington at 10.7 percent and Utah at 10 percent.
Total federal student loan debt
Included in the U.S. Department of Education’s report is the total amount of outstanding federal and private student loans. Outstanding FFEL loans have dropped over 50 percent since the fourth quarter of 2013, and outstanding Perkins loans have fallen the same amount.
Now, you may be wondering, “Then how is there more outstanding student loan debt than in previous years?” This is due to the rise in outstanding direct loans, which have risen over 133 percent since 2013.
Here’s a look at the past five years of outstanding federal student loan debt:
Year (Q4)
Direct loans (in millions)
Federal Family Education Loans (FFEL) (in millions)
Perkins loans (in millions)
Total (in millions)
2018
$1,150.3
$281.8
$7.1
$1,439.2
2019
$1,242.6
$261.6
$6.1
$1,510.3
2020
$1,315.2
$245.9
$5.2
$1,566.3
2021
$1,375.9
$230.4
$4.4
$1,610.7
2022
$1,422.8
$207.8
$3.9
$1,634.5
Source: U.S. Department of Education
Total private student loan debt
When taking out a student loan, you can receive federal student loans or private student loans. Private student loans aren’t provided by the federal government, and they often come with much higher interest rates. While federal student loans sometimes have forgiveness programs that can help eliminate some of your debt, private loans don’t have the same benefit.
Less than two percent of private student loan borrowers default on their student loans (MeasureOne)
The average interest rate on private loans is between four and 15 percent (Education Data Initiative)
Refinancing a private student loan can range between 2.25 to 12 percent (Education Data Initiative)
53 percent of private loan borrowers did not borrow the maximum amount of Stafford loans (TICAS)
11 percent of these borrowers didn’t apply for federal financial aid (TICAS)
Average student loan debt by age group
The debt among Americans is divided by age group in the U.S. Department of Education report, and it shows that people ages 35 to 49 owe the most in federal student loans. While this age group owes a total of $634 billion, those under 24 years of age only owe $104 billion, followed by people 62 and older at $107 billion.
Age group
Total outstanding loan balances (in billions)
Under 24
$104
25 to 34
$497
35 to 49
$634
50 to 61
$293
62 and older
$107
Source: U.S. Department of Education
Student loan repayment status
While many Americans are paying their student loans on a monthly basis, for a variety of reasons, some people may need to apply for a deferment or forbearance. If you’re facing financial hardships, you can apply for these services to pause your loan payments. It’s also helpful to know that you may still accrue interest while in forbearance or deferment.
The following table shows the total number of Americans by loan status as per the U.S. Department of Education during the fourth quarter in 2022:
Loan status
Recipients (in millions)
Currently in school
6.3
In grace period
1.3
Repayment
0.4
Deferment
3.0
Forbearance
25.6
Cumulative in default
4.8
Other
0.1
Source: U.S. Department of Education
Student loan default and delinquency rates
When graduating from college, it can take some time for people to begin making enough money to pay back their student loans. But remember, missed payments turn delinquent the day after missing the first payment and then go into default after 270 days.
Here are some notable statistics from the Education Data Initiative:
The majority of borrowers have at least one late payment in the first five years of repayment
Over 40 percent of borrows in default status owe between $20,000 and $40,000
Almost 11 percent of borrowers default within their first year of repayment
Less than 20 percent of borrowers are delinquent at least five times
Graduates with Arts and Humanities majors have the highest default rate at 26 percent
Student loan debt forgiveness
The most common form of federal student loan forgiveness is the Public Student Loan Forgiveness Program (PSLF). This is a student loan forgiveness program for a variety of different service jobs. According to the PSLF website, there are no specific jobs, and all a company needs to do is qualify for PSLF. Although there are no specific jobs listed, here are some of the typical careers that qualify, as reported by Kristen Kuchar at SavingforCollege.com:
Law enforcement
Public health
Education
Social work
Emergency management
Public safety
Government jobs
PSLF releases a monthly report with some interesting information. The following is data from their December 2022 report:
There were 1.8 million forms processed for people qualifying for PSLF
Of the more than 1.9 million forms processed, 88,202 did not qualify for PSLF
The largest portion of borrowers qualified for income-driven repayment, which allows for lower payments based on current income
34,000 people who applied have employers that do not qualify for PSLF
The primary sector qualifying for PSLF is government employees, who accounted for 61 percent of the processed forms
Student loan debt FAQ
We’ve covered a lot of data about student loan debt statistics in America, but you may have some lingering questions. Below is a list of some frequently asked questions, along with their answers.
What is the average student loan debt in 2023?
The average American graduate owes $37,787 in student loans.
Who suffers the most from student loan debt
According to the Education Data Initiative, Black and African American graduates owe $25,000 more than white graduates on average. About 48 percent of these former students also owe six percent more than they borrowed.
Is student loan debt increasing or decreasing?
The credit bureau Experian® shows the average student loan balance increased 91 percent between 2009 and 2022.
Who owns the most student loan debt?
As of September 2022, the U.S. Department of Education reported that people ages 35 to 49 owe the most student loan debt at a total of $634 billion.
Don’t let student loan debt affect your credit score
If you’re having trouble paying your student loan debt, you’re not alone. With 4.8 million Americans in default and 28.6 million in deferment or forbearance status, it’s clear to see that many people are in the same situation. Unfortunately, not paying your student loan debt can harm your credit score, which can make your financial life difficult and cause additional stress.
Fortunately, Credit.com is here to help. We offer different tools that can help you work to repair and improve your credit. We’re also here to help you learn how to manage your debt so you can make your payments on time and avoid any dings to your credit in the future. If you’re curious about your current credit status, sign up for your free credit report card today.
Here’s how this social worker has paid off $28,000 of student loan debt in 15 months.
Today, I have a great debt payoff progress story to share from Taylor. Taylor is a social worker who is working on paying off $277,000 of debt and retiring early. She shares tips on how she is cutting her expenses, the ways they’ve increased their income through various side hustles, house hacking advice, and how she qualified for an $88,000 student loan award.Enjoy!
Now, don’t let the title deceive you into thinking we are debt free; we most certainly are not.
As of this writing, we still have $251,195.39 of debt (all student loans).
This is our story about the debt payoff strategies we used in paying off $28,026.02 of debt and our goals for the future!
Who are we?
My name is Taylor, and I am a 29-year-old medical social worker who finished grad school in 2018. I am also a part-time social media coordinator and with both jobs combined, I make $96,000 (gross).
I live with my husband, Bret, who I have been with for 11 years and married for 3. He is a full-time student and has been in grad school since September 2020 (he has about 2 more years left). We love to travel, try new restaurants, hang out with our friends and family, and just have a good time.
I also have a blog at Social Work to Wealth.
Related articles:
How did we get here?
First, I need to give you some background before we get into the nitty gritty of our debt numbers and payoff strategies.
2012: We met when both of us were in college. I was 18 and Bret was 22. Soon after we met, Bret took a few years off from school while I finished my bachelor’s. I relied entirely on student loans, and don’t remember applying to any scholarships. When Bret returned to school to finish his bachelor’s, he did receive some scholarships and worked a summer job to pay forhousing but still needed to rely on student loans to pay the bulk of his tuition.
I will speak for myself when I say I didn’t take the time to calculate how much loan money I actually needed and blindly accepted the total amount. Looking back, maybe I would have needed it all or maybe not, but I wish I would have at least done the exercise.
We have always been open with talking about our debt and money in general, but I remember us both expressing the thought that we would probably always have our student loans. We would just live our life, pay our minimum payments, and that would be that. There was never any talk about debt payoff strategies, or any money management strategies, really.
We went through many life transitions. Living apart for two years while I went to grad school, him returning to school to finish his bachelor’s, various jobs, and a post-bach program.
2019: Bret was finishing up his post-bach program and got accepted into grad school. We were newly engaged and began planning and saving for our wedding scheduled for July 11th, 2020. Such exciting stuff!
March 2020: We got the news our wedding venue was closing for the foreseeable future due to the COVID-19 pandemic, and we decide to cancel our wedding. We switched gears and used the money we saved for a down payment on a new home. Then, we had a small intimate wedding featuring a hot-air balloon with 18 of our closest family members! We personally saved a ton and also had tremendous help from our family.
September 2020: I start a new job and Bret starts grad school. We are newlyweds and settling into our new home in a new city.
I wish I could talk more about 2020 because it was a HUGE year for us with buying a home, moving, getting married, Bret starting grad school and me starting a new job, but that’s a conversation for another day!
Our wedding
From frugal to spenders
When we were saving for our wedding, we were very frugal. Any extra money we had, we put toward our wedding savings (which again, ended up being used for the down payment on our house and a smaller wedding ceremony).
We went from frugal to swiping our cards left and right to prepare for our wedding and furnish our house. It was sooo nice to finally be able to spend the money we had been saving for so long! But this continued into 2020… and 2021…
We were mostly spending on eating out and experiences. We do like to buy “things” but we definitely value food and experiences a lot more. We even decided to put a trip to Hawaii on our credit card costing us around $5,000, along with other expenses, because why not? We deserved it!
We didn’t have much of a budget, our bills were getting paid, but the credit card bill kept increasing. Since I was the only one bringing in income, we took out some student loans to help with a portion of our living expenses. And the credit card bill continued to increase.
The “wake-up call”
The “wake-up call” is such a theme throughout many debt payoff stories. So, here’s mine.
I went to breakfast with two friends in December 2021, and one of them brought up high-yield savings accounts (HYSA). I had never heard of this type of account before and was shocked to learn that these savings accounts had a way better interest rate than a regular savings account.
How was I just hearing about this at 28 years old? My mind was blown!
I thought, what else don’t I know? So of course, that led me to deep dive into the world of personal finance. I consumed any book, video, blog, or podcast I could get my hands on. I read stories after stories of people paying off thousands of dollars’ worth of debt, leveraging credit card points for free travel, investing, and so much more!
It was so motivating. I was hooked! (And still am.)
Bret was open and willing for me to share with him what I was learning. We started realizing that for the last year and a half, we hadn’t been telling ourselves “No”. We had just been buying whatever we wanted, and we had the credit card bill and no savings to show for it.
We learned that we could pay off all our debt and it didn’t have to stay with us forever. We learned there was a way to use a credit card responsibly (we thought we were). We learned that we could even retire early. That one sounded real nice! We dreamed of having more time doing our hobbies, traveling and being with our friends and family. And if we ever had kids, we dreamed of being able to work part-time so we could be home more with them and available for school activities.
Knowing this, we started reining in our spending, trying to just be more “mindful”, but no major change was made.
We take on more debt
April 2022: People in our neighborhood were getting new fences. We started thinking, “Hey, we need a new fence, too…” In some areas it was broken, it hadn’t been stained so was rotting, and was 15 years old. We were also going to get an updated appraisal to see if we could get our primary mortgage insurance (PMI) removed after just two years of owning our home and thought a new fence might help.
A coworker told me she was using a home equity loan to buy a fence and to do some other home renovations. We investigated options and ended up opening a $20,000 home equity line of credit (HELOC) instead with about a 4% interest rate. We buy our fence which ends up being about ~10,000 and we were set on it…
The second “wake-up call”
When it was all said and done, we loved our fence. We still love our fence, it’s beautiful! (And it better be at that price!) We stained it and we believe it will last us for many years.
But we start talking again about our debt and how we probably didn’t need this fence right now. We know we didn’t need this fence right now. Our PMI was removed, and it could have maybe happened even without the fence. Who knows.
We began thinking we need to make some serious changes in the way we manage our money. We need to do more than just be “mindful” about our spending. We make a real plan. We plan to make an actual budget, stop taking on unnecessary debt, and take a break from using our credit cards for the foreseeable future.
May 2022: Beginning of our debt payoff journey
Since we were serious about our new money management changes, I documented how much debt we had so we could track our progress.
$277,721.41
Here was the breakdown:
$260,390.25 in student loans, Bret & I’s combined – various interest rates
$10,676.24 HELOC – 4% interest rate
$5,430.76 is from credit card spending – 4% interest rate*
$449 for furniture – 0% interest rate
$775.16 for Peloton bike – 0% interest rate
*We moved our credit card debt to our HELOC since our credit card was around a 25% interest rate.
July 2023: Current debt numbers
Our current debt balance is $251,195.39, * which are all student loans.
We have paid off a total of $28,026.02 of debt!
*Our current balance will increase to ~$255,000 once Bret gets his final student loan disbursement (more on that later).
I want to also mention that we do have our mortgage, but we aren’t trying to pay that down as quickly as possible for a few reasons: we have a 3% interest rate, we don’t plan on this being our forever home, and one day we might rent it out or sell it.
Actions that helped us pay off $28,026.02 of debt in 15 months
We found a budgeting method that worked for us
We realized we could live off my income alone and not take on anymore debt, but we would have to have a somewhat rigid budget.
Finding a budgeting method that worked for us took some time. I don’t know how many times over the years I have tried to track my expenses in a budget app or an excel sheet, only to find out it was too overwhelming and that I was still overspending!
I am a visual person and learned about the envelope budgeting method, so we decided to give that a try, but use a digital variation.
So, for our entire money management system we have 4 checking accounts and 2 savings accounts (short-term and emergency fund). Our checking accounts include bills, food and miscellaneous, and two personal spending accounts.
This may seem like a lot of accounts to some, but it has worked tremendously for us. I love having a separate account for each major category in our budget so I can easily see how much money we have left in a certain category without having to add every expense into an app or Excel spreadsheet. We are joint owners on all of these accounts.
We then use the zero-based budget method to determine how much goes into each account.
We do have multiple cards to manage, but the pros VERY MUCH outweigh the cons here.
And with our own spending accounts, we have a certain amount of money allotted to us each month, so we individually have some spending freedom. We don’t have to feel guilty and know this money is set aside specifically for our personal spending.
Cut expenses and increased our income
I know some people are tired of hearing about this recommendation, but it’s something that really did help us! We reined in our spending a bit but mostly we had to increase our income. At a certain point, there wasn’t much more to cut.
We didn’t have many streaming services, started to limit our eating out, we didn’t have car payments, and we meal planned and prepped. We did (and still do) aaalll the things. We had to increase our income somehow.
Ways we increased our income
My income increase
I continued with my second job as a social media manager and then started dog sitting.
I have been dog sitting for about 5 years and have primarily used the Rover platform to list myself as a dog sitter. I like this app because it’s easy to use and I can specify various services to offer (e.g., house sitting, boarding, drop in visits, day care, or dog walking).
It also allows me to mark which days I am available and then people reach out to me if I seem like a good fit and my availability matches with their needs! Setting up my profile took some time, but now that it’s done, everything else is fairly low maintenance.
I now just have to respond to inquiries in a timely manner and set up a meet and greet if it seems like a good fit.
I currently only offer house sitting and on Rover and I charge $65/night. Rover takes a cut, so I end up pocketing $52. I also have private clients who pay me directly, and I have gotten those by referrals from past Rover clients. I charge my private clients $40/night.
I recently increased my rates on Rover and have been slow to increase my price with my private clients because they’re loyal.
I don’t make a ton of money dog sitting, but I am able to make a couple hundred dollars a month. My schedule is very limited, but there are people with better availability who make significantly more than I do!
I love animals and we don’t have any due to our sporadic work schedules, so it’s a great way for me to spend time with pets and get paid, too!
Bret’s income increase
Last year, Bret decided to take a break from grad school and soon after, he was offered a summer job in Alaska.
When we first started dating, he used to spend almost every summer there working for a family who owned a set-netting fishery. His uncle had spent many summers in Alaska working for this family and one summer brought Bret to work with him. They would catch salmon and sell it to a buying station in their area.
He went up there for about 6 summers in a row, until he got too busy with school and couldn’t go anymore.
He hadn’t been to Alaska in over 5 years, but someone who worked for the buying station remembered Bret, called him, and asked if he’d be interested in working at the buying station! Since he was already on a break from school, he said yes and worked up there for 8 weeks.
We were able to put every paycheck he earned towards our debt because we could manage all our expenses on my income alone. It was also a great way for Bret to spend part of his summer and I was finally able to visit as I never gotten the chance in previous years.
House hacking
We also started house hacking! We had a spare bedroom and bathroom I would use for my office and occasionally, for guests. A friend of mine and her husband are really into the real estate space and gave us the idea to rent it out.
We weren’t comfortable with the idea of having a long-term roommate, and with both of us working in healthcare, we knew there was a need for short-term and furnished housing for travelling healthcare professionals.
For us, short-term meant renting for 1-6 months, but we were open to individuals staying longer if it worked well for everyone involved!
Some questions we had to address before renting:
Did we need a permit?
How much should we charge for the deposit, rent and pets?
What furniture and amenities are important for travelers?
Where should we list the room?
How to create a lease agreement?
In our county, we did not need a permit to rent out the room if we were renting for at least 30+ days at a time.
After researching rental prices in our area, I found rooms that were of similar caliber listed for $1,100 per month or more. We wanted to be competitive and so we initially settled on $900 per month and have steadily increased it. We have now landed on $995 per month which includes all utilities and internet.
We set the deposit at $995, with an additional $300 for a pet deposit, and no ongoing pet rent.
We wanted to upgrade the furniture in the room and IKEA was a great place for us to find affordable, durable, and aesthetically pleasing furniture. We made sure the room had a bed, large dresser, bedside table, and we kept my desk in there too.
I read it’s important for travelers to have their own TV available so they can unwind in their room. We were able to find a decently priced smart TV off Facebook Marketplace.
Furnished Finder is where we decided to list our room, which started out as a platform for traveling nurses to find furnished housing. It is now used heavily by many healthcare professionals, students, and professionals in other fields.
Travelers reach out to us through the Furnished Finder website and if the dates work out, we move forward with scheduling a video interview. It’s important for us to be able to talk to the person, even if it’s just over video, and we want them to see our faces and home in real time as well.
For the lease agreement, we used ez Landlord Forms, because they have leases for each state with specific information on what’s required to include.
We don’t ask for anything major from tenants. The most important things to us are that they are respectful of our space, don’t smoke in the house, and pay their rent on time. We also added a page at the end for tenants to add two emergency contacts in case we need to call someone on their behalf.
We have had 4 renters so far with the room being occupied for 13 out of the last 14 months. It has really helped us with our debt payoff goals and we have also met some awesome people through the process! We plan to continue renting it out for the foreseeable future.
Applied for in-state student loan help
My state offered a program called the Oregon Behavioral Health Loan Repayment Program where they help minorities in the behavioral health field, or those who serve them, pay back their student loans.
This program is funded by The Behavioral Health Workforce Initiative which has the goal of recruiting and retaining behavioral health providers who, “Are people of color, tribal members, or residents of rural areas of Oregon, and can provide culturally responsive care for diverse communities.”
To apply, I had to show I was employed and actively providing behavioral health services and give them detailed documentation about my student loans. I also had to answer two essay questions related to being a part of and/or working with communities who are underserved and how my training has equipped me with supporting these communities.
I applied last year and was a recipient of an award!
As a recipient, there is a two-year service commitment which means I have to continue providing some sort of behavioral health service during that time frame (which I planned to). Over the next two years, I will be getting ~$88,000 in quarterly disbursements to put towards my student loans. So far this year, I have received ~$11,000, and it’s been life changing to say the least!
Alongside this support, I am also pursuing Public Service Loan Forgiveness (PSLF) for additional student loan relief.
Managing our mental health while paying off debt
Since I am a social worker, I often think about how money and debt affect individuals’ mental health. It’s one of the reasons why I started my blog in the first place.
I realized managing money is a universal task and many of us don’t know what we are doing because talking about money is taboo. And when you have financial stress, it can really take a toll on your mental health. So, I wanted to share our journey in hopes of helping others.
Bret and I aren’t those individuals who want to avoid eating out and fun experiences until we are debt free. And, we are also privileged to not have to take those extreme measures either. It has been important for us to make this journey sustainable and not deprive ourselves of experiences while we are going through it.
Here’s how we are making our journey sustainable:
Still going out to eat
Budgeting for personal spending money, aka fun
Setting realistic debt payoff goals
Putting aside money for travel
Not comparing and thinking other people are better than us because they’re able to pay off their debt quicker
Tracking our debt payoff progress (we use Excel). With so much debt left to pay off, being able to see our progress is really motivating
Openly talking about our debt. Avoidance is a coping mechanism for many, for us, acknowledging and addressing it has been so freeing (but it wasn’t always this way).
Talking about our dreams and reminding ourselves why we want to do this in the first place
We know that if we eliminated going out to eat, budgeting for fun, or both, we could be paying off our debt much quicker. However, that sounds miserable to us. It’s worth it to still go out to dinner, travel, or buy plants (in my case) than to deprive ourselves of the joy these things bring.
We are making great progress and we know in time, we will be debt free.
Our debt payoff journey is not linear
A few months ago, we decided to take out $6,000 of student loans. Bret currently has a full tuition scholarship, so we are tremendously lucky in that regard, but he just learned about some conferences that would be really helpful to his professional growth. We have gotten $1,500 of this loan money already which is included in our current debt balance, but we haven’t received all of it yet.
We could have pinched and saved to avoid taking on any of this debt, but that would have caused me to work more than I currently am. Again, not in line with our current goal of making this journey sustainable!
We were very intentional about how much to take out. We estimated how much he would need for a few conferences and declined the rest. We even opened a separate savings account for the money to make sure it didn’t get accidentally spent on anything.
I’m SO proud of us for that!
The goal here is progress not perfection. So cliche, I know. But we are learning how to think critically about our money, spend thoughtfully, use our money as a tool to reach our goals, and enjoy our life along the way. And right now, that meant taking on a little more debt.
We are moving in the right direction, and we know when he starts working, that will really accelerate our debt payoff journey since we have proven to ourselves we can live on my income alone.
Our plan going forward
Bret is still in school which means his loans are on deferment, so we currently have his on the back burner.
With the loan payment assistance I am receiving, it’s allowing us to put any extra money we have each month towards our savings. Our priority right now is building up a good emergency fund of about $16,000 (~4 months’ worth of expenses).
This has been difficult because of inflation and just little emergencies that keep popping up, but we are slowly making progress.
I am also prioritizing investing in my employer retirement plan, but only up to the amount that gets me my employer match which is 6% of my income.
Bret will be graduating in 2025, so at that time, we will pivot to incorporating his loans into our budget. Our goal is to be debt free by 2028.
It will take a lot of discipline and persistence, but I think we can do it. I am manifesting it!
We want to continue to learn, implement, and grow. We want to keep having transparent discussions about money and building our money foundations. And I personally want to continue sharing our journey with hopes of inspiring, encouraging and educating others. Here’s to sharing the wealth.
Do you have debt? What are you doing to pay it off?
Taylor is a social worker and personal finance blogger at Social Work to Wealth where she shares tips, resources, and lessons learned on her family’s journey to paying off $277,000 of debt and retiring early. She hopes to inspire and empower social workers with financial education so they can have a better relationship with their money. When she’s not working or blogging, you can find her traveling, gardening, trying a new restaurant, or buying too many plants.
“The IDR account adjustment puts everybody closer to the statutory [student loan] cancellation that they could be eligible for under the income-driven repayment plans, regardless of whether or not they enrolled in an IDR plan in the past,” explains Kyra Taylor, a staff attorney focused on student loans at the National Consumer Law Center.
Even if your loans aren’t automatically forgiven, the account adjustment will move you closer to the end of your repayment period and closer to forgiveness if you sign up for an IDR plan, which typically takes 20 or 25 years of full monthly payments.
For borrowers who’ve been in repayment for less than 20 or 25 years, here are answers to questions about the IDR account adjustment, and steps they can take to get the most out of it.
When will the IDR adjustment happen if I don’t get automatic forgiveness?
Borrowers who receive IDR credit under the account adjustment — but not enough to automatically qualify for forgiveness — will see their payment count updated sometime in 2024. The Education Department has not given an exact date yet.
How much IDR credit will I get?
To find out how much credit toward IDR forgiveness you’ll receive under the one-time IDR account adjustment, you can tally past payments yourself. Generally, borrowers get IDR forgiveness after 20 or 25 years on an IDR plan, or 240 or 300 monthly payments, which are capped at a certain percentage of their income.
Log in to your Federal Student Aid account at StudentAid.gov to see how long you’ve been in repayment. For detailed information, including descriptions of specific forbearance or deferment periods, request your account history from your servicer.
The adjustment will include the following past periods, through August 2023, toward the number of monthly payments needed to reach forgiveness:
Any month a borrower was in repayment, even if the payments were late or partial. The type of repayment plan doesn’t matter.
Time spent in forbearance, either periods lasting 12 or more consecutive months or a cumulative 36 or more months.
Any month spent in deferment, other than in-school deferment, before 2013.
Any month spent in economic hardship or military deferments on or after Jan. 1, 2013.
Any months in repayment, forbearance or a qualifying deferment before a loan consolidation.
Any months spent in COVID-19-related forbearance.
Past months spent in default will generally not be included in the recount, though borrowers who enroll in the temporary Fresh Start program to get out of default will get IDR credit from March 2020 through the date they leave default.
How to benefit from the account adjustment
The account adjustment will be automatic for most borrowers, but some borrowers need to take an extra step before the end of 2023. If you want to benefit from the account adjustment to reach loan forgiveness more quickly, you must sign up for an IDR plan.
Consolidate your loans if necessary
Borrowers with certain types of loans will need to consolidate them into direct loans by the end of 2023 to receive the account adjustment.
These types of loans must be consolidated to receive IDR credit if they don’t reach the forgiveness threshold:
Commercially managed FFEL Program loans, i.e., those held by companies like Navient.
Perkins loans.
Health Education Assistance Loan (HEAL) Program loans.
Parent PLUS loans.
If you consolidate loans that were in repayment for different periods of time, the new consolidation loan gets the maximum amount of IDR credit that accrued among the loans, Taylor explains.
Enroll in an IDR plan
Federal student loan borrowers will need to start making payments again this fall. Interest resumed on Sept. 1, and bills will come due in October.
For borrowers who anticipate having a leftover balance after the account adjustment, enrolling in an IDR plan now is very important, says Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit that advocates for student debt relief. This will allow borrowers to continue making progress toward IDR loan forgiveness once payments restart, he says.
SAVE is a good option for most borrowers. Benefits include halved monthly bills for most borrowers with undergraduate loans, no compounding interest if you make regular payments and faster forgiveness for borrowers with smaller balances.
Some middle- or low-income borrowers could even see $0 monthly payments under SAVE, while working toward loan forgiveness. For these borrowers, SAVE “is basically an extension of the payment pause that you just have to fill out some paperwork for,” Pierce says.
Parent PLUS borrowers are only eligible for the Income-Contingent Repayment plan, which is the “least generous” of the four IDR plans, says Taylor. Monthly ICR payments can be high: they’re capped at 20% of the borrower’s discretionary income, rather than 5% to 10% under the other three IDR plans.
Borrowers with parent PLUS loans should see how close they are to cancellation and whether it’s worth it to consolidate and enroll in ICR as a step toward loan forgiveness, Taylor explains.
What if I’m enrolled in Public Service Loan Forgiveness?
If you have at least one approved PSLF form, you may see your payment count adjusted as early as the fall of 2023. Servicers will continue to adjust PSLF counts monthly until the final adjustment in 2024.
Under the account adjustment, you’ll get PSLF credit for any month, dating back to October 2007, in which you had qualifying employment and were in a repayment status, regardless of the payments made, loan type or repayment plan. Borrowers who qualify for PSLF get loan forgiveness after just 10 years, or 120 monthly payments.
The account adjustment is automatic for all PSLF-eligible Direct Loans, including consolidated and unconsolidated parent PLUS loans — but borrowers with commercially or federally held FFELP loans must consolidate them before the end of 2023 to receive the adjustment.
Use the Federal Student Aid office’s PSLF Help Tool to certify periods of employment and track progress toward loan forgiveness under PSLF.
After more than three years, federal student loan payments are restarting. A lot of new changes have been enacted, such as changes to income-driven repayment (IDR) and loan forgiveness, and some actions are still in the pipeline.
With the end of the federal loan interest and payment forbearance right around the corner, here are the important dates that borrowers may need to know.
Summer 2023: New SAVE Plan Revealed
What’s Happening
The Department of Education announced changes to its federal income-driven repayment plans. The Saving on a Valuable Education (SAVE) plan was introduced, replacing the current Revised Pay As You Earn (REPAYE) plan.
Partial benefits under the new repayment plan go into effect before the payment pause ends. This includes benefits that dramatically lower your monthly payment, subsidize any interest that isn’t covered by your payment, and exclude your spouse’s income for your payment calculation.
If you’re already enrolled in REPAYE, your plan will be automatically enrolled in the new SAVE plan. 💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
Who’s Impacted (and Who Isn’t)
Borrowers who are already under the REPAYE plan, or are interested in getting on the SAVE plan.
This doesn’t affect borrowers who are on an alternative repayment plan, or those on an IDR plan who don’t wish to enroll in SAVE.
What You Need to Do to Prepare
If you’re already enrolled in REPAYE, there’s nothing you need to do at this time. If you’d like to be enrolled in SAVE, submit an IDR application to your loan servicer. This can easily be done online and takes about 10 minutes.
September 1, 2023: Interest Accrual Resumes
What’s Happening
The COVID-19 administrative pause will officially end on August 31, and interest charges on your federal loans will resume on September 1.
Also, you might start receiving your student loan bill in September. Your bill will be sent at least 21 days before your payment is due, and will include the payment amount and its due date.
Who’s Impacted (and Who Isn’t)
All borrowers with federal student loans that were included in the interest rate pause.
This date doesn’t affect student loans that were ineligible for the payment and interest pause. That includes private loans and Federal Perkins Loans and Federal Family Education Loans (FFEL) that weren’t owned by the Department of Education.
What You Need to Do to Prepare
First, confirm whether your federal loan servicer has changed by logging into your StudentAid.gov account. You can also call 1 (800) 433-3243 for assistance. During the payment pause, some companies left the federal loan servicing business while new ones were brought into the fold.
After confirming who your servicer is, create an online account on the servicer’s website to manage your repayment moving forward.
October 1 2023: First Payments Due
What’s Happening
Your first payment is due in October, based on the due date stated on your loan bill. However, borrowers who graduated after March 1, 2023 will receive a full six-month grace period before their first payment is due. That means that, for instance, undergraduates who graduated in May 2023 will begin making payments in December 2023.
Who’s Impacted (and Who Isn’t)
Borrowers who left or graduated school before March 1, 2023, and who have an unpaid federal student loan balance. This doesn’t apply to federal borrowers who had non-government held Perkins or FFELs which weren’t included in the emergency forbearance action.
What You Need to Do to Prepare
Log in to your servicer’s website to access your loan to review your payment amount and due date. If you were previously enrolled in auto-pay before the pause, you’ll need to re-enroll in automatic payments through your loan servicer’s site.
December 31, 2023: Last Day to Consolidate for IDR Adjustment
What’s Happening
This is the deadline to consolidate non-qualifying loans into a Direct Consolidation Loan to claim the one-time, temporary IDR Account Adjustment. Claiming this adjustment helps eligible borrowers get credit for past non-qualifying payments.
Borrowers who consolidate their non-qualifying loans by this time can accelerate their track toward loan forgiveness. Generally, if after the adjustment is applied, you made more qualifying payments than needed for loan forgiveness, you’ll have the amount refunded.
Who’s Impacted (and Who Isn’t)
Borrowers who are or were enrolled in an IDR plan, as well as borrowers who are participating in Public Service Loan Forgiveness (PSLF). Also, borrowers aren’t on an IDR plan yet, but want to enroll in one and have government-held Direct or FFEL Loans.
What You Need to Do to Prepare
Don’t wait until the last minute to consolidate your non-qualifying loans. Contact your federal student loan servicer ASAP to get the process started. If your non-qualifying loan is in default, you can still access this adjustment by getting your loan out of default (for instance, through Fresh Start ).
July 2024: Additional SAVE Plan Benefits Available
What’s Happening
The second wave of SAVE plan benefits start in July 2024. Some key benefits are even lower monthly payments, and an accelerated track toward loan forgiveness.
Borrowers who are only repaying undergraduate loans on the SAVE plan will have their monthly payment reduced from 10% of their discretionary income to only 5%. Those with a mix of undergraduate and graduate loans under SAVE will pay a weighted average between 5% to 10% of their discretionary income.
Additionally, borrowers whose original principal loan balance was $12,000 or less will have any remaining loan balance forgiven after making 10 years of repayment — a much faster timeline than SAVE’s usual 20- or 25-year forgiveness period.
Who’s Impacted (and Who Isn’t)
Borrowers who are enrolled in the SAVE plan, or are interested in getting on the SAVE plan. This doesn’t affect borrowers who are on an alternative repayment plan, or those on an IDR plan who don’t wish to enroll in SAVE.
What You Need to Do to Prepare
Make sure your contact information is up to date with your loan servicer so you receive announcements as this date nears. If you want to take advantage of these benefits, but aren’t enrolled in an IDR plan, submit an IDR request to your servicer to see if you qualify for SAVE.
September 30, 2024: End of “On-Ramp” Transition
What’s Happening
The Department of Education is enacting a 12-month “on-ramp” phase from October 1, 2023 to September 30, 2024. During this time, loan accounts that don’t receive a payment won’t be penalized, and although interest will accrue, it won’t capitalize after the on-ramp expires. However, after this date, student loans that are past due on a payment will be reported to the credit bureaus, marked as delinquent or in default, and the account might be sent to debt collection.
Who’s Impacted (and Who Isn’t)
Student loan borrowers who have not made a payment since the restart of federal student loan interest and payments, and borrowers who are struggling with their student loan payment.
What You Need to Do to Prepare
No action is necessary to participate in the on-ramp. However, reach out to your loan servicer if you can’t meet your loan obligation before this date to learn about your options to avoid severe consequences.
For example, you might be able to secure a lower payment under an IDR plan or qualify for temporary deferment or forbearance.
The Takeaway
In the last few years, there have been many changes to help borrowers with federal student loan repayment. However, the many different deadlines and moving parts can make staying on top of your to-do list challenging.
Keeping these dates in your calendar can help you track, and take advantage of, valuable federal programs.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Are student loan payments going to start?
Yes. Interest on federal student loans that were paused during the COVID-19 administrative forbearance will resume on September 1, 2023, and payments will be due in October 2023.
Is Biden going to pay student loan debt?
Certain federal student loan borrowers might have all or a portion of their remaining unpaid student debt canceled. A new administrative action is being put into place to recalculate payment credit toward loan forgiveness for 804,000 borrowers who are enrolled in an income-driven repayment plan.
The administration’s plans to cancel up to $20,000 of federal student loans for eligible borrowers, however, was struck down by the Supreme Court. No further forgiveness actions have been announced as of this writing.
How do I find out if my student loans have been forgiven?
If you received loan forgiveness as a result of recent changes in the federal student loan system, you’ll receive a notice from your loan servicer or the Department of Education. This might be sent via mail or electronically. Ensure that you can log in to your StudentAid.gov or servicer’s website, and your mailing address and email are correct.
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SoFi Student Loan Refinance NOTICE: The debt ceiling legislation passed on June 2, 2023, codifies into law that federal student loan borrowers will be reentering repayment. The US Department of Education or your student loan servicer, or lender if you have FFEL loans, will notify you directly when your payments will resume For more information, please go to https://docs.house.gov/billsthisweek/20230529/BILLS-118hrPIH-fiscalresponsibility.pdf https://studentaid.gov/announcements-events/covid-19
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income based repayment plans or extended repayment plans.
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