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Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

President Joe Biden’s plan to forgive up to $10K or $20K of a borrower’s federal student loan debt may have tax implications at the state level. Under the American Rescue Plan Act of 2021, virtually all student loans forgiven in the years 2021 through 2025 are excluded from federal income taxation.

State tax forgiveness is another matter, however. States are not prohibited from imposing and collecting taxes on federally forgiven loans. Read on to learn the tax implications that residents of Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina, West Virginia, and Wisconsin may face.

Tax Implications by State

Most states have no plans to tax Biden’s student loan forgiveness plan, according to the Tax Foundation, a nonprofit policy group. But at least eight states may consider federal student loan forgiveness to be taxable: Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina, West Virginia, and Wisconsin. Taxpayers in these states may have to pay hundreds of dollars more in state income tax if they receive thousands of dollars in federal student debt relief.

The Biden administration’s forgiveness plan would provide up to $10K in debt relief to federal student loan borrowers with annual incomes below $125,000 ($250,000 for married couples). Some borrowers may qualify for $20K in debt forgiveness if they’re Pell Grant recipients who fall below the income cap.

Here’s more information about the states that may tax debt forgiveness:

Arkansas

Arkansas does not automatically follow federal tax code changes. This means Arkansas may collect taxes on federally forgiven student loans.

The Arkansas Department of Finance and Administration in a local news report suggested the state is reviewing whether Biden’s debt relief plan carries statewide income tax implications.

California

California does not conform to the student loan forgiveness provisions under the federal American Rescue Plan Act of 2021, according to the Tax Foundation. That means Californians who receive $10K or $20K of debt relief from the Biden plan may have to pay state taxes on the amount forgiven.

Indiana

The Indiana Department of Revenue plans to tax federal student loan forgiveness, according to the Associated Press. Unless state lawmakers change the law, Pell Grant recipients in Indiana could owe about $646, the AP reported.

Minnesota

After President Biden and Vice President Kamala Harris championed their broad student loan forgiveness plan, the state of Minnesota acknowledged state tax implications.

In a note posted on the Minnesota Department of Revenue website as of early September 2022, the state said student loan forgiveness under the Biden-Harris Administration “is included as taxable income on a Minnesota individual income tax return and does not qualify for a subtraction under current Minnesota law.”

Minnesota lawmakers in local news reports have suggested they may change the law to remove the state’s income tax implications.

Mississippi

Mississippi plans to tax the $10K or $20K of federal student loan forgiveness that qualified borrowers may receive in the near future, according to published news reports.

State lawmakers could amend Mississippi’s law to eliminate the income tax liability, but at the moment, Mississippi’s elected leaders have not indicated whether they would do that.

North Carolina

The North Carolina Department of Revenue said federal student loan forgiveness is considered taxable income under state law until further notice. “The Department of Revenue is monitoring any further enactments by the General Assembly that could change the taxability of student loan forgiveness in North Carolina,” the state’s Department of Revenue said in an online post dated Aug. 31, 2022.

West Virginia

West Virginia may tax Biden’s debt forgiveness, according to the Washington Post. West Virginia is reportedly seeking guidance from the IRS on whether it should treat federal student debt relief as income. It’s not clear where West Virginia might end up on the issue.

Wisconsin

Wisconsin may tax federal student loan forgiveness, according to the Tax Foundation’s independent analysis. Local news reports suggest Wisconsin’s Democratic governor supports a legislative change to remove the tax liability issue, but at least one Republican state legislator went on record to oppose such a change.

Other Biden Administration Plans

The federal government offers income-based repayment plans that may lead to loan forgiveness after 20 or 25 years. The Biden administration, however, is proposing a rule that may allow some borrowers on a federal income-driven repayment plan to have their loans forgiven after 10 years.

The Income-Contingent Repayment or ICR plan may cap a borrower’s monthly payment at 20% of their discretionary income in many cases. The Biden administration’s proposed rule would allow some federal student loan borrowers to have monthly payments as low as 5% of their discretionary income.

Impact of Student Loan Refinancing

For those wondering how refinancing affects forgiveness, you won’t be eligible for federal student loan forgiveness if you refinance your student loans with a private lender. What you can do, however, is consider student loan refinancing after taking advantage of your federal options.

Biden’s loan forgiveness plan stops far short of the $50,000 student loan cancellation that some progressive Democrats advocated. This means borrowers with $50,000 of federal student loan debt could refinance their remaining balance after receiving partial forgiveness from the Biden plan.

Refinancing federal student loans may provide borrowers with a lower interest rate, but these borrowers would also be forfeiting other federal benefits they might be eligible for. Public employees with federal student loans, for example, may benefit from the Public Service Loan Forgiveness program. The PSLF program is not available to borrowers who refinance student loans.

Recommended: Will Refinanced Student Loans Be Forgiven?

Federal Tax Break For Paying Student Loans

Eligible taxpayers who have paid interest on a qualified education loan may claim a deduction on federal income taxes, including a tax deduction on refinanced student loans. The student loan interest deduction can reduce your taxable income by up to $2,500 during an annual tax period.

Recommended: Are student loans tax deductible?

Is Private Student Loan Forgiveness Possible?

The difference between private student loans vs. federal student loans is that federal student loans come from the U.S. Department of Education, whereas private student loans come from banks, credit unions, and other private lenders not affiliated with the federal government.

Lenders of private student loans generally have no obligation to offer private student loan forgiveness. Private lenders, however, may reach debt settlement agreements with delinquent borrowers.

Private student loan debt settlement may include partial debt forgiveness, which may qualify as taxable income at the state level. Forgiveness of private education loans are temporarily excluded from federal income tax for the years 2021 through 2025.

The Takeaway

Student loans forgiven before January 2026 are excluded from federal income taxation, but they may be taxable at the state level for some borrowers. At least eight states may consider taxing federal student loan forgiveness. Be sure to check out the requirements of your state.

If you’re carrying more than $20,000 of student loan debt or earn too much money to qualify for Biden’s loan forgiveness plan, student loan refinancing may be right for you. Refinancing what’s left after receiving $10K of forgiveness may allow you to save money before rates rise even higher. You can check if you prequalify and view your rate without impacting your credit score.

Photo credit: iStock/Pekic
SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

This summer, President Joe Biden announced that individuals who earn $125,000 or less per year will be eligible for $10,000 in federal student loan cancellation. A big caveat: You cannot benefit from forgiveness from the federal government if you’ve refinanced your entire federal student loan amount.

We’ll go over the details of who qualifies for the new, one-time student loan forgiveness plan, how refinancing affects eligibility for federal benefits, and reasons why some individuals may want to refinance anyway.

How Federal Student Loan Forgiveness Works

Student loan forgiveness means that you are no longer required to pay back all or a portion of your federal student loans. Federal student loans are student loans that come directly from the federal government. President Biden’s proposed forgiveness will be available only to people paying down federal loans, not private loans.

The plan includes important updates to the federal student loan system:

•  Individuals who earn less than $125,000 per year ($250,000 for married couples) will be eligible for $10,000 in student loan cancellation.

•  Pell Grant recipients can receive up to $20,000 in debt cancellation.

•  The pause on federal student loan payments has been extended through Dec. 31, 2022.

•  Borrowers with undergraduate loans on income-driven repayment plans could cap their payments at 5% of their monthly expenses, down from 10%.

•  Loan balances would be forgiven after 10 years of payments, down from 20 years, for loan balances of $12,000 or less.

Further details will be released in the weeks ahead. For a deep dive into the announcement, including reactions from the plan’s supporters and critics, read Student Debt Relief: Biden Cancels Up to $20K for Qualifying Borrowers.

How Refinancing Affects Forgiveness

When you refinance a student loan, a new, private lender pays off your old loan (or multiple loans) and replaces it with a new loan. A private lender may replace either a federal loan(s) or another private loan. Both federal loans and private loans are converted to a new private loan — you cannot refinance to another federal student loan.

It’s important to understand that the portion of a federal student loan that is refinanced (meaning you don’t have to refinance the entire amount) would lose federal loan benefits. Those benefits include:

•  Eligibility for federal student loan forgiveness.

•  Income-based repayment plans: payment plans intended to be affordable based on your income and family size.

•  Deferment: a temporary pause in student loan payments where no interest accrues on your loans.

•  Forbearance: also a temporary pause, but one during which interest may accrue on your loans.

See below for details on each of these benefits.

How Student Loan Refinancing Works

Borrowers refinance student loans for several reasons, including:

•  Lowering your interest rate: Lowering your interest rate means you’ll pay less in interest over time, which can save you money in the long run.

•  Changing to a fixed or variable rate: A fixed interest rate is a rate that doesn’t change throughout the loan term. On the other hand, a variable interest rate will change depending on the underlying interest rate benchmark. Refinancing can give you the option to choose between either a fixed or variable rate.

•  Lowering your monthly payment: If you prefer to pay a little less on your loan payments per month, you may want to consider lowering your monthly payment. In this case, your lender will extend your repayment period. This means that it will take you longer to repay your loan — and note that you’ll pay more in interest over time.

•  Shortening your repayment period: If you choose to shorten your repayment period, your monthly payment will go up. However, you’ll save money in interest over the life of the loan.

To refinance, you can shop around with different lenders to check their interest rates and terms. You’ll need to supply private lenders with your name, address, degree type, student loan debt totals, income amounts, housing costs, and more. The information you’ll need to supply generally depends on individual lenders. After that, the lender will run a soft credit check. Lenders should then present you with several offers, including various terms and interest rates (both fixed and variable rates).

Before you decide on the right private lender for you, check on origination fees (the upfront charge to process an application), any prepayment penalties if you were to pay off the loan early, customer service capabilities, and the overall costs to you.

Next, you’ll offer further information to your lender, including proof of citizenship, a valid ID, and pay stubs and/or tax returns. The lender will likely then run a hard credit check, and you’ll go through a final approval process.

Check out our guide to student loan refinancing for a complete overview of how to refinance a student loan.

Recommended: 7 Tips to Lower Your Student Loan Payment

Protections for Federal Student Loans

When you trade federal student loans for a refinance, you give up certain federal student loan benefits, including guaranteed postponement and income-driven repayment options.

Guaranteed Postponement

As mentioned earlier, postponement options include deferment and forbearance. In both cases, you can contact your loan servicer for information and instructions on how to defer your loans. In most cases, you’ll have to fill out a form.

Here are some details about both deferment and forbearance to understand what you’d be giving up by refinancing:

•  Deferment: As mentioned earlier, deferment means you access a temporary pause in student loan payments during which no interest accrues on your federal student loans. Federal Direct Loan, Federal Family Education (FFEL) Program loan, and Perkins Loan borrowers can access deferment options. You may qualify for deferment in a few different ways, including while undergoing cancer treatment, during economic hardship, during a graduate fellowship program, while you’re in school, while completing military service or through post-active duty, if you are a Parent PLUS borrower and your student is still in school, while in a rehabilitation training program, and/or if you’re unemployed.

•  Forbearance: While you can get a temporary pause on your federal student loans through forbearance, interest might accrue on your loans. You must continue to pay any interest that accrues during the forbearance period. There are two types of forbearance: general and mandatory.

•  General forbearance: You may be able to obtain general forbearance if you experience financial difficulties, medical expenses, a change in your employment status, and other factors. If you have federal Direct Loans, FFEL Program loans, and/or Perkins Loans, you may be able to use general forbearance for no more than 12 months at a time. You can request another general forbearance later. However, over time, you can only obtain three years’ worth of general forbearance.

•  Mandatory forbearance: Your loan servicer must grant a mandatory forbearance for federal Direct Loans and FFEL Program loans under the following circumstances: You receive a national service award while serving in AmeriCorps, under the U.S. Department of Defense Student Loan Repayment Program, during a medical or dental internship or residency program, or as a member of the National Guard activated by a governor. You can also access a mandatory forbearance if the amount you owe each month for all the federal student loans you received is 20% or more of your total monthly gross income or if you qualify for teacher loan forgiveness. You can qualify for mandatory forbearance for no more than 12 months at a time but may request mandatory forbearance when your current forbearance period expires.

Income-Driven Payment

As mentioned earlier, through an income-driven repayment plan, your monthly student loan payment gets set at an amount that reflects your income and family size. You can consider four income-driven repayment plans and fill out an application to be considered for one:

•  Revised Pay As You Earn Repayment Plan (REPAYE Plan): When you access a repayment plan, your monthly payment is recalculated based on a percentage of your discretionary income. In this case, the REPAYE Plan will whittle down your payment to 10% of your discretionary income, and you’ll pay your loans back over 20 years (for loans for your undergraduate education) or 25 years (for loans for your graduate or professional education). If you have an eligible federal student loan, you can generally make payments through the REPAYE Plan.

•  Pay As You Earn Repayment Plan (PAYE Plan): Your monthly payment will generally amount to 5% of your discretionary income and never more than the 10-year Standard Repayment Plan amount. You’ll repay your loans over 10 years. You may qualify if you have higher debt than your annual discretionary income or if your debt represents a significant amount of your annual income. Additionally, you must be a new borrower in order to be eligible.

•  Income-Based Repayment Plan (IBR Plan): Under Biden’s new plan, your monthly payment will generally amount to 5% of your discretionary income if you’re a new borrower (on or after July 1, 2014) but will never amount to more than the 10-year Standard Repayment Plan amount. If you’re not a new borrower (on or after July 1, 2014) your monthly payment will generally amount to 15% of your discretionary income and will never add up to more than the 10-year Standard Repayment Plan amount. For new borrowers, the plan will last for 10 years. If you’re not a new borrower, your plan will last 25 years. You’ll generally qualify if your federal student loan debt is higher than your annual discretionary income or represents a large portion of your annual income.

•  Income-Contingent Repayment Plan (ICR Plan): Your payment will be calculated based on the lesser of these two factors: 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years, adjusted based on income. You’d repay for 25 years as long as you qualify with an eligible federal student loan.

Recommended: REPAYE vs PAYE: What’s the Difference?

Are There Any Protections for Private Student Loans?

Private loans generally don’t qualify for forgiveness and offer fewer protections than federal loans. However, it’s worth looking into the protection and hardship options for various private lenders.

Based on a search of top private lenders, check out the table below to walk through the types of programs offered by various private student loan lenders:

Can Private Student Loans Be Forgiven by the Federal Government?

As noted above, private student loans do not qualify for federal loan forgiveness. However, there are several other alternatives that you can consider through your private loan lender. Though you can’t apply for income-driven repayment plans or take advantage of federal student loan forgiveness, your private loan lender can walk you through your options in order to avoid delinquency or default on your loans.

Can Refinanced Student Loans Be Forgiven by the Federal Government?

You may be wondering, “does refinanced student loan forgiveness exist?” Since refinanced student loans turn into private loans, refinanced student loans cannot be forgiven by the federal government, one of the key differences between federal vs. private student loans. That said, when refinancing, you choose the amount. So if you refinance everything but the $10,000 or $20,000 you expect to be forgiven, that remaining amount of federal student debt still has federal protections and is eligible for forgiveness.

You may have also have heard about the possibility of the Biden administration offering loan forgiveness on a wide scale and may wonder, “Will refinanced student loans be forgiven in addition to non-refinanced private loans?” Unfortunately, the current plan applies only to certain federal student loans, and there is no proposal to include refinanced student loans in the future. The administration would likely not be able to forgive the loans of private student loan borrowers or in the case of refinanced student loans.

Options to Consider When You’re Unable to Make Your Student Loan Payments

As mentioned, it’s a good idea to contact your loan servicer to calmly explain how you’re having trouble making your student loans. In most cases, your lender will work with you to discuss a schedule for affordable payments.

Here are a few other options you may want to consider in this situation:

•   Put together a budget: Putting yourself on a budget may help you allocate the right amount toward all of your expenses, including your student loans.

•   Get an extra job: Consider getting an extra job in order to generate more income to put toward your student loans.

•   Cut expenses: It’s easy to spend too much on subscriptions, cable, or other things. Cutting expenses could free up money so you have more to put toward your student loans.

•   Explore student loan modification: You may also pursue a student loan modification, or a change to the terms and conditions of the repayment of an existing student loan. Learn how student loan modification works.

•   Refinance: Finally, consider refinancing your student loans to a private loan lender to lower your interest rate or your payments. You can use our calculator for student loan refinance rates to see how much refinancing could potentially save you.

Recommended: Passive Income Ideas

Explore Student Loan Refinancing With SoFi

Because refinancing federal student loan(s) means converting them to a private student loan, the amount of federal debt that you refinance will no longer be eligible for federal forgiveness or other federal benefits. So if you are eligible for Biden’s one-time forgiveness, you can leave out the amount you expect to be forgiven — and refinance the rest.

If you think a refinance fits your needs, don’t forget to look into all of the benefits and drawbacks that apply to your particular lender. For example, if you’ll owe a penalty if you pay off your student loans early, you may want to explore other options. Check out refinancing student loans now with SoFi, which offers competitive rates and charges no prepayment penalties.

FAQ

Can private student loans be forgiven?

You cannot access the same loan forgiveness options for private student loans that you can get with federal student loan forgiveness. However, don’t discount the private student loan protections you can take advantage of when you want to refinance your student loans.

Can you get your student loans forgiven if you can’t afford them?

Yes, you can get your federal student loans forgiven as long as you meet the eligibility requirements — but it’s important to remember the key words “federal student loans.” You cannot get private student loans forgiven.

When will student loans be forgiven?

On Aug. 24, 2022, President Joe Biden announced that individuals who earn less than $125,000 per year will be eligible for $10,000 in federal student loan cancellation and Pell Grant recipients are eligible for an additional $10,000 of forgiveness. Since then, there have been legal challenges to the student debt relief, and a court-ordered stay.

Photo credit: iStock/damircudic

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

In late August 2022, President Joe Biden announced a federal student loan forgiveness program, which will cancel up to $20,000 in student loan debt for qualifying borrowers. While many details need to be fleshed out by the administration, the plan will cancel $10,000 in debt for individuals earning less than $125,000 per year ($250,000 for married couples who file taxes jointly or heads of households) and $20,000 for those who had received Pell grants for low-income families.

Prior to President Biden’s announcement, there was fierce debate among politicians, lawyers, and other stakeholders on whether the president could actually cancel student loan debt. Proponents claim that the president has the authority to cancel federal student loan debt without input from Congress, while opponents argue that the program is an executive overreach and illegal. The debate will rage on, even after the student loan forgiveness announcement; the move will likely be challenged in court in subsequent months to determine if the president can cancel student loan debt.

Can the President Forgive Student Loan Debt by Executive Order?

On the 2020 presidential campaign trail, Biden ran in part on a student loan reform platform. On top of suggesting potential changes to existing federal student loan forgiveness programs, he floated the possibility — both in Tweets and in campaign speeches — that he supported a proposal to forgive $10,000 in federal student loan debt.

Recommended: Student Debt Relief: Biden Cancels Up to $20K for Qualifying Borrowers

However, as mentioned above, it was unclear whether the president had the legal authority to cancel federal student debt by executive order and without any legislative action. Even some top aides argued that the president should work with Congress to pass legislation that would cancel student loan debt.

So, as part of the federal student loan forgiveness announcement, the Department of Education released a memo laying out the legal justification that would allow the president and the executive branch to cancel student loan debt.

The memo states that the HEROES Act, which was enacted following the Sep. 11, 2001, terrorist attacks, gives the Secretary of Education the power “to grant relief from student loan requirements during specific periods (a war, other military operation, or national emergency, such as the present COVID-19 pandemic) and for specific purposes (including to address the financial harms of such a war, other military operation, or emergency).”

The Biden administration determined it could cancel federal student loan debt with this justification. And thus, President Biden announced the federal student loan relief plan .

Nonetheless, opponents of the plan will likely challenge the move in the courts, so there is a chance that the widespread cancellation of federal student loans will not be carried out.

Could Student Loan Relief Affect Private Student Loans?

The widespread cancellation of up to $20,000 in student debt will only apply to borrowers with different types of federal student loans, including PLUS Loans.

If you’re looking for private student loan relief, namely to lower your payments, you may want to consider refinancing.

Recommended: The Advantages and Disadvantages of Student Loan Refinancing

Student Loan Debt That the President Has Forgiven So Far

Before the recent announcement, the Biden administration forgave nearly $32 billion in student loan debt as part of various initiatives.

In mid-August 2022, the administration said it would cancel $3.9 billion in student loan debt for 208,000 students who attended ITT Technical Institute, a now-closed for-profit school. Additionally, the Biden administration erased $5.8 billion of educational debt for all former students of Corinthian Colleges, another now-closed for-profit school. This latter cancellation was the largest single student-debt cancellation ever by the United States government.

Another $7.3 billion in student loans were obliterated for 127,000 borrowers through amendments to the Public Service Loan Forgiveness Program. This allows non-profit and government employees to have their remaining debt forgiven after 10 years or 120 payments.

And more than $8.5 billion in student loans have been forgiven for 400,000 borrowers with a total and permanent disability.

Additionally, $7.9 billion of student loans was forgiven for 690,000 borrowers through borrower defense to repayment. People can apply for borrower defense if their education provider deceived them “or engaged in other misconduct in violation of certain state laws,” according to the ED’s Federal Student Aid office.

Identifying Existing Repayment Options

Borrowers have been in limbo, waiting to know if and how much student loan debt the Biden administration will cancel. But even with a little more clarity, many details still need to be worked out, like how borrowers can apply for forgiveness.

With student loan interest rates climbing, it could be a good idea to focus on the aspects of your educational debt that you can control.

One place federal borrowers can start is to determine if they qualify for existing federal student loan repayment programs — including income-driven repayment, deferment, and public service student loan forgiveness.

As part of the federal student loan forgiveness plan, the Biden administration also announced that borrowers with undergraduate loans in an income-driven repayment plan would be able to cap their payments at 5% of their monthly income — a change that could reduce bills for millions of borrowers. The government’s current income-driven plans generally cap payments at 10% to 15% of a borrower’s discretionary income. Additionally, loan balances would be forgiven after 10 years of payments, instead of the current 20 years under many income-driven repayment plans, for borrowers with original loan balances of $12,000 or less.

Another place, as mentioned earlier, is to look into student loan refinancing. It’s important to understand the refinancing process. When borrowers refinance federal student loans through a private lender, the borrower forfeits eligibility for federal repayment programs and federal protections like forbearance and deferment. (With private loan refinancing, a new private loan replaces the borrower’s existing educational debt — generally including new loan terms and rates).

Certain private lenders offer hardship programs to provide a cushion for the unexpected — like being laid off for no fault of your own. (Not all lenders offer these programs, so it’s key to read the lender’s terms and fine print). For example, SoFi offers unemployment protection to eligible borrowers.

When weighing whether to pursue student loan refinancing, some borrowers find it useful to research the rates and terms offered by lenders, including any fees or penalties.

The Takeaway

President Biden has announced transformative changes to federal student loans, canceling up to $20,000 in student debt for qualifying borrowers. However, questions about whether the president has the authority to cancel this debt remain. Opponents of the executive order will likely challenge the plan in the courts, and it may be some time until there is a definitive answer to the question of can the president cancel student debt.

Even with the federal student loan forgiveness announcement, many borrowers may not qualify for this debt relief. If this sounds like you and you are considering refinancing your student loans, it may be best to act now. After all, interest rates are on the rise from their historic lows. Instead, you could refinance your student loans and lock in today’s low rate.

FAQ

When will student loans be forgiven?

The Biden administration announced that up to $20,000 of federal student loans will be forgiven for qualifying borrowers. However, details around the plan still need to be fleshed out, like how borrowers can apply for forgiveness and when the debt will be discharged.

Do student loans go away after seven years?

Sorry, there is no program currently in place for that. This belief stems from the fact people see student loans disappear from their credit reports after this amount of time. Seven years after the first missed payment that led to a loan either defaulting or being charged off, the main three credit bureaus (Equifax, Experian, and TransUnion) erase the default status and late payments from reports.

Are student loans forgiven after 25 years?

The answer to this is a “yes, but.” Yes, you can have your student loans forgiven after 25 years, but only if you pay them under an income-driven repayment plan, which only applies to federal loans. The U.S. government offers four income-driven repayment plans.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Packing up and heading off to college is an absolutely thrilling time in a young person’s life. However, with all the fun comes a lot of responsibility. One of the first, and perhaps most important, choices a college student must make is exactly where they want to live.

Students may choose between living on- or off-campus, though some schools require freshmen to live on-campus. On-campus housing is generally a convenient option for students because they will be close to their classes. Off-campus housing can potentially be less expensive than living on-campus.

Here are a few things to consider on your journey to finding college housing.

1. Start With a Budget

College student housing can get expensive very quickly, especially if a student decides to live in off-campus housing.

It’s important to begin any college housing search by first determining a budget. How much rent can the student actually afford month-to-month while also maintaining enough funds to pay for tuition, food, and other living expenses? Figuring out a personal housing budget is a wholly unique process for each student.

Budgeting Considerations for College Students

Students should sit down and map out all monthly expenses either alone or with a loved one to figure out just how much they can afford and go from there. While developing your budget, consider things such as:

•   Transportation costs to get to and from campus

•   Utilities and internet

•   Whether the apartment will be furnished or will require you to bring (or buy) furniture

•   How you’ll split these costs with roommates

•   Grocery costs vs. relying on the college dining plan

Some considerations and costs may vary depending on whether you choose to live on- or off-campus. If you are still debating between on- or off-campus housing, it may help to map out two budgets to capture the difference in cost and expenses between the two options. SoFi’s Ca$h Course: A Student’s Guide to Money has more information on setting up your college budget.

Paying for Housing Expenses

In addition to costs, evaluate sources of income so you have an idea of how you will pay for your tuition and housing expenses. Have an honest discussion with your parents or guardians about how much they are able to contribute toward housing and tuition expenses.

In addition to savings, undergraduate loans can be used to pay for housing expenses. Students may apply for both federal or private student loans. Federal student loans have certain benefits like deferment options and income-driven repayment options that aren’t necessarily afforded to private student loans. Therefore, federal student loans are typically prioritized over private student loan options. Learn more about the differences between private and federal student loans in SoFi’s private student loan guide.

Students who qualify for a need-based Pell Grant can also use these funds toward their housing expenses. Some scholarships may have restrictions on how the funding can be used, but others will be flexible and can be used for any qualifying education expense including housing costs. When doing your scholarship search, be sure to read the fine print so you understand if there are any restrictions up front.

Recommended: Guide to Unclaimed Scholarships

2. Decide on On-Campus or Off-Campus Housing

After outlining your budget it’s time to answer another big question: On-campus housing or off? This is a major consideration for many students and can be budget-dependent.

It can also be dependent on what year the student is as many colleges require students to live on campus during their freshman year. But, after that, it’s likely up to students.

Each choice has its merits and its pitfalls so weigh the pros and cons of on-campus vs. off-campus housing before deciding.

Recommended: Budgeting Tips for High School Students and Those Entering College

On-campus Housing

For those who want to live on-campus, there are likely a number of options available at their school. This can include residence or dorm halls. Think of these as apartment buildings, but smaller. Some dorms require students to share rooms with other students, and often only come with one bathroom per floor (though there are a lucky few who may be able to snag a private bath).

Dorms often do not come with private kitchens, though they may have a shared space. This often means students will likely also purchase a meal plan, so factor that in when budgeting.

Beyond dorms, students may also be able to live in on-campus apartments or in fraternity or sorority housing. These homes are typically maintained by private Greek organizations and admittance to the frat or sorority is usually required in order to live in the house. Room styles in Greek housing can vary greatly, along with availability, even as a member.

Note that some fraternity or sorority housing options are considered off-campus housing so you may need to check the housing program at your university.

Older students may also want to look into graduate housing, family housing, or co-op living on their university or college campus.

Off-Campus Housing

Off-campus housing may vary depending on where you go to school. The first option may be to just remain living at home with parents or guardians. Though this may not be the college dream for many, it can be one way to cut expenses in both housing and food.

If a student chooses to remain home he or she should sit down with their parents or guardians prior to the start of the school year to go over expectations on both sides. Have the tough conversations about curfews, chores, and anything else one would typically discuss with any other roommate.

Of course, college students may also look for off-campus housing by renting a nearby apartment or home either alone or with friends. Renting alone could be an option for those who like their space and quiet time for studying, but, this could also become prohibitively expensive as that person would also have to pay all the bills on their own.

By renting with friends a college student may gain a bit more independence while still being able to rely on others to split the cost of rent and other bills.

Note that student loans can be used to pay for both on- and off-campus living expenses.

Recommended: Using Student Loans for Living Expenses and Housing

3. Figure Out the Right Timeline

No matter which option a student chooses — on-campus or off — they must also follow the right timeline. Many colleges and universities have deadlines to declare the need for on-campus housing, while many college town rentals also follow a specific timeline for rentals.

Areas surrounding college campuses may be competitive for rentals. Some schools offer off-campus guides to get students started with their search. It may also help to do a bit of digging on your college community and ask friends who have moved off-campus in the past to see what the timeline is there.

4. Where to Look for Housing

For off-campus students, there are a plethora of options for looking for housing online. This includes websites like Zillow, Trulia, Apartments.com, Craigslist, and more. Each of these websites allows users to filter their searches by location, price, number of bedrooms and bathrooms, or any other specific needs.

A student and their potential roommates may want to sit down together to list out their wants vs. needs in housing (for example, a big kitchen, study area, outdoor space, or pet-friendly) and begin their search from there.

5. Tour Housing Options

Prior to committing to housing, take a bit of time and tour the homes in person. This can help you get a feel for a place, open up the cabinets, test the water pressure, see if the street noise is too much, or anything else that may bother someone. On the tour, a student may find items not to their liking or may find things that will allow them to negotiate the rent down. Go in and take plenty of notes.

6. Look at the Fine Print

Don’t sign a lease (or anything for that matter) without reading the fine print. Before putting a name on the dotted line make sure to read each and every section in a lease and ask questions of the landlord.

Also, it’s important to note it’s not a one-way street — you too can add things to the lease. However, a landlord will have to agree before making any changes. But, if there’s something you want in there for your own legal protection, it doesn’t hurt to ask for it.

7. Consider Renter’s Insurance

Students living off-campus may want to consider renters insurance. Those living in a dorm may be covered by their parents’ home or renter insurance policy if you are listed as a dependent. Renters insurance may protect a person’s things if they are lost, damaged, or stolen from the home.

For example, if a pipe bursts while a student is in class and their home is flooded, renters insurance could cover the cost of replacing their damaged items. And, renters insurance could even cover temporary living expenses if their home becomes unlivable.

The Takeaway

No matter where a student lives, things can most certainly get expensive. But, rather than stress about how they’ll pay for their newfound freedom, students should plan instead. And that begins by looking into all their financial options, including a SoFi private student loan.

Students, along with their parents or guardians, can apply for a private student loan with SoFi in minutes and get on their way to finding the perfect housing option for them. SoFi student loans have no origination fees, no late fees, and no insufficient fund fees.

Note that private student loans aren’t appropriate for every student, and are generally relied on after a student has explored other options including federal student aid and scholarships. Upon graduation, students can choose one of SoFi’s repayment options, paying back the loan on a timeline that works for them.

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On Aug. 24, 2022, President Joe Biden ended months of speculation by announcing that each American who earns $125,000 or less per year ($250,000 for married couples) will be eligible for $10,000 in federal student loan cancellation.

He also announced that Pell Grant recipients can receive up to $20,000 in debt cancellation. Federal Pell Grants usually are awarded to undergraduate students who display exceptional financial need.

Additionally, the pause on federal student loan payments for all borrowers has been extended yet again. Repayment is now set to resume in January 2023.

“In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023,” Biden tweeted on Aug. 24th.

In addition, Biden said those with undergraduate loans on income-driven repayment plans would be able to cap their payments at 5% of their monthly income — a change that could reduce bills for millions of borrowers. The government’s current income-driven plans generally cap payments at 10% of a borrower’s discretionary income.

Also, many of the government’s income-driven forgiveness programs will be affected by a 5% cap on monthly income. Loan balances would be forgiven after 10 years of payments, instead of the current 20 years under many income-driven repayment plans for borrowers with original loan balances of $12,000 or less.

What Loans Are Eligible and How Can Borrowers Claim This Relief?

The $10,000 or $20,000 in student debt canceling is available only to people paying down federal loans, not private loans.

The White House said, “The Department will be announcing further details on how borrowers can claim this relief in the weeks ahead. The application will be available no later than when the pause on federal student loan repayments terminates at the end of the year. Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to the Department.”

Biden’s plans could face legal challenges, “making the timing of any relief uncertain,” according to the New York Times.

Are the Loan Servicers Ready?

A deadline postponement until Dec. 31st gives the loan servicers more time to prepare for payments to resume.

The companies that handle federal student loans have undergone considerable turmoil in the last two years. FedLoan Servicing, Granite State Management and Resources, and Navient have all withdrawn from student loan servicing. The student loans were transferred to other companies.

In late July of this year, with the Aug. 31st deadline approaching, the existing federal student loan servicers were told to hold off on sending out payment reminders to borrowers, but the White House provided no further direction in the weeks that followed. Rumors swirled about Biden’s next move on student loans.

Scott Buchanan, the executive director of the Student Loan Servicing Alliance — a group that represents companies servicing over 95% of all federal student loans and the vast majority of private loans — wrote a letter to Education Secretary Miguel Cardona on August 22nd to inform him “that any announcement at this late date, less than ten days before the scheduled resumption of September 1, risks operational disruptions.”

“We are now 10 days out from the scheduled resumption for 35 million borrowers, and – as servicers have warned for weeks would be the case – it may not be possible to ensure that a full and complete delay in resumption could be effectuated systemically by September 1 for every borrower without incident,” Buchanan wrote.

After Biden made his August 24th announcement on Twitter, the Student Loan Servicing Alliance tweeted, “ATTENTION: #studentloan servicers have been provided no specific information re: the President’s loan cancellation proposal and await detailed guidance from @usedgov Please understand servicers have no more information for you yet. There is no action for you to take now.”

Recommended: Who is my Student Loan Servicer?

Reactions Split on Loan Canceling

U.S. Secretary of Education Miguel Cardona released a statement saying, “Earning a college degree or certificate should give every person in America a leg up in securing a bright future. But for too many people, student loan debt has hindered their ability to achieve their dreams — including buying a home, starting a business, or providing for their family. Getting an education should set us free; not strap us down! That’s why, since Day One, the Biden-Harris administration has worked to fix broken federal student aid programs and deliver unprecedented relief to borrowers.”

Student loans are a hot topic for debate.

Since he took office, Biden has been under mounting pressure to cancel student debt. While campaigning for the presidency, Biden said he would forgive $10,000 in student loans, but he sought counsel from Department of Education experts on the legal aspects to a write-off and declined to release a decision, despite requests that he do so.

Some prominent Democrats have urged Biden to cancel more than $10,000 in debt.

Senate Majority Leader Chuck Schumer and some Democratic colleagues have pushed for $50,000 in student-loan forgiveness. During an AFL-CIO roundtable in June, Schumer vowed to continue fighting until $50,000 in relief is achieved, according to Business Insider.

The NAACP released a statement in late August saying, “As time continues, the needs of the American people have not — and will not — change without substantial cancellation. If student debt repayments can be paused over and over and over again, there’s no reason why the President cannot cancel a minimum of $50,000. Do it to reduce the racial wealth gap, do it to capture the interest of many who will participate in the November election, do it for the future of American families and communities.”

At the same time, critics of student loan cancellation and payment postponement say that these measures could make inflation worse in America.

“On its face, the move could cost taxpayers about $300 billion or more in money they effectively lent out that will never be repaid,” the New York Times reported.

“Student loan debt relief is spending that raises demand and increases inflation,” former Treasury Secretary Larry Summers said on Twitter. “It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college.”

Sumners added that student loan relief “will also tend to be inflationary by raising tuitions … Every dollar spent on student loan relief is a dollar that could have gone to support those who don’t get the opportunity to go to college.”

The Takeaway

President Biden has announced transformative changes to federal student loans: a plan to cancel $10,000 in federal student loan debt for individuals earning $125,000 or less annually ($250,000 for married couples) and up to $20,000 if you went to college on Pell Grants.

Moreover, people with undergraduate loans would be able to cap their payments at 5% of their monthly income in income-driven forgiveness plans — a change that could reduce bills significantly since these plans usually cap payments at 10% or 15% of a borrower’s discretionary income.

Student loan refinancing will allow you to seek a lower interest rate and desirable terms for the amount of your federal loan debt not affected by Biden’s cancellation plans. Interest rates are on the rise from historic lows and could see further increases in the coming months. Refinancing, however, means losing access to federal protections and programs, including the payment pause that has been extended until the end of the year.

Photo credit: iStock/TriggerPhoto
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SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.