Your Income Is Too High For Student Loan Forgiveness: Now What?

By now you have probably heard all about Biden's student loan forgiveness plan. While various announcements were made, including the creation of a new income-driven repayment plan and some tweaks to the Public Service Loan Forgiveness (PSLF) program, the biggest details come in the form of up to $20,000 in student loan forgiveness per eligible borrower.

Specifically, individuals with federal student loans will soon see up to $10,000 in their debt forgiven, and eligible borrowers who paid for school with Pell Grants will see up to $20,000 in debt forgiven.

Like any other "free" offering from the government, however, you have to look at the details. For example, both levels of forgiveness are only available to individuals who earn less than $125,000 per year or couples who earn less than $250,000. According to a White House fact sheet on the forgiveness measures, these income caps ensure "no high-income individual or high-income household – in the top 5% of incomes – will benefit from this action."

But, what if you earned just a little bit over these thresholds? Or, what if you are truly struggling to repay your student loans despite a high income? Unfortunately, setting arbitrary thresholds on benefits like this will always leave some otherwise-worthy people out in the cold.

On the flipside, there are some steps you can take to try to get relief if you don't qualify for this forgiveness plan. If you are finding yourself ineligible to have any of your debt forgiven, here are some alternatives.

State-Based Loan Repayment Assistance Programs

Currently, 48 states offer some type of state-based student loan forgiveness plan . Some of these options are very niche - requiring you to work in specific fields, or even in specific rural locations.

However, other states are much more generous. For example, Maryland has a student loan repayment assistance program called Maryland SmartBuy where you can get your student loan repaid if you buy a home in the state.

Another example is Maine, who offers student loan repayment assistance in the form of a tax credit. Called Opportunity Maine , if you got your bachelor’s degree in Maine and work in Maine, you could qualify.

Make sure you research options in your state that you could qualify for.

Ask Your Employer For Help

According to Mindy Yu, who serves as Director of Investing at Betterment at Work, a recent survey conducted by Betterment found that 57% of employees believe their employer should play a role in helping them pay down student debt. This could be through direct financial support, or through the offering of tools to help guide them through the process, the study notes.

Either way, employers can pay up to $5,250 toward an employee's student loans each year on a tax-advantaged basis through 2025 thanks to Section 2206 of the CARES Act. In fact, this benefit can be offered tax-free on behalf of the employer, and the employee won't have to pay taxes on the benefit, either.

Yu adds that another potential support system employers can offer is a student loan matching program, which is similar to a 401(k) match in that the employer will earmark funds to match employees’ student debt repayment

She also adds that, if a direct student loan management solution isn’t available, you can check to see if your employer provides access to financial advisors and resources.

"These advisors can work with you to develop personalized recommendations on how your loan payment plan fits in with the rest of your financial goals," says Yu. "If your employer doesn’t already offer such programs, ask whether it’s something they’re evaluating adding in the future."

Look At Other Repayment Plan Options

If you don't qualify for forgiveness but your monthly payment could be a problem when payments on federal student loans resume in 2023, you can also reach out to your loan servicer about new repayment options.

Yu notes that federal student loans offer several repayment plans other than the standard 10-year repayment, including “Pay As You Earn (PAYE)” and other income-related options. These alternatives can help make month-to-month payments on large debt loads more affordable — depending on what works best alongside other financial responsibilities. Plus, most borrowers don’t realize that all of the income-driven repayment plans include student loan forgiveness at the end of the term.

Borrowers with high amounts of debt in relation to their incomes can also look into signing up for Biden's new income-driven repayment plan, which is expected to base required monthly payments on 5% of discretionary income instead of 10% like some other income-driven plans. Per WhiteHouse.gov, this new income-driven plan should lower the average annual student loan payment by more than $1,000 for current and future borrowers.

In the meantime, the new plan is expected to raise the amount of income that doesn't count as discretionary while "guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment."

This move won't help borrowers with incomes on the high end of the scale, but it's still worth noting. In the meantime, the new plan is expected to lead to forgiveness of remaining student loan debt in 10 years instead of 20 for borrowers with original loan balances of $12,000 or less.

The Bottom Line

If you're missing out on student loan forgiveness due to a high income, you do have some options when it comes to getting a lower monthly payment or some assistance through an employer. In fact, now may be a great time to assess your student debt and your financial situation, and to see if any changes you make now could leave you better off over the long run.

Of course, nothing we recommend will be as sweet as having $10,000 to $20,000 in debt forgiven overnight. That said, doing something now may wind up being a lot better than doing nothing at all.

By Robert Farrington, Senior Contributor