What to do while waiting for a possible student loan forgiveness

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Contact your lender

Due to the pause in student loan bill payments during the pandemic, most borrowers have not made a payment for more than two years. Now the bills should end up in the mailboxes again in September.

Even if some student debt is forgiven, you may still have a balance and you should check your loan account. There are many things you need to find out: Did you get the relief you are entitled to? If you have a bottom tab, what is it?

Make sure your credit servicer also has all of your current contact information so you can stay up to date with any of these changes. You can update your information with your credit service provider at StudentAid.gov.

Add to that the fact that due to changes in the industry, millions of borrowers will have a new loan servicer until payments resume.

Affected borrowers should receive multiple notifications, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trading group for federal student loan services.

If you accidentally send a payment to your old servicer in September, the money should be routed to your new one, Buchanan said.


Again, don’t count on student loan forgiveness to wipe out all of your credit.

“In all likelihood, student loan forgiveness will be limited in availability and amount so that you cannot expect to pay off all of your student loan debt,” Kantrowitz said.

Student loan forgiveness, if that happens, will likely be limited to federal loans only

Markus Kantrowitz

university expert

For example, a $10,000 cancellation would pay off the debt in full for only a third of borrowers.

As a result, Kantrowitz recommends starting throwing away some money now to ease the pain of bills resuming.

Hold off on refinancing

Even though interest rates are currently low, Kantrowitz says borrowers should think twice about refinancing their debt with a private lender.

“Student loan forgiveness, if it comes to pass, will likely be limited to just federal loans,” he said.

You don’t want to give up debt relief while still aiming for a lower interest rate.

Try to make sure you are entitled to the relief

Millions of people who took out student loans under the Federal Family Education Loan program before 2010 have been excluded from the government’s offer to suspend their payments interest-free during the coronavirus pandemic.

There is some concern that these borrowers could also be barred from making student loans.

As a result, FFEL loan holders may wish to contact their servicer and consolidate them into the main direct loan program that qualifies for forgiveness, Kantrowitz said.

The main disadvantage of doing this is that it resets your repayment schedule and when you are near the end it might not make sense.

Don’t stress about taxes

Student loan forgiveness is now tax-free thanks to a provision included in the state’s $1.9 trillion coronavirus stimulus package that went into effect in March 2021.

Previously, all student loan debt forgiven by the government was considered taxable and charged at the borrower’s normal income tax rate.

By Kantrowitz’s rough estimate, a $10,000 cancellation would have triggered $2,000 in additional taxes for the average borrower. If $50,000 per borrower was called, the average person would have to write the IRS a $10,000 check.

Borrowers would now be exempt from these bills.

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