What communities of color should know about student loan forgiveness

How the new plan can help to close the racial wealth gap

What to look for in credit counseling


This article originally appeared in OfColor, a platform established to improve the financial health of people of color. It has been licensed by Upwise.

Starting in 2023, millions of Americans will likely see their student loan balance drop to zero. In August 2022, the White House announced that it would forgive up to $10,000 in student loans for all borrowers making less than $125,000 in 2020 or 2021, and up to $20,000 for borrowers who were Pell Grant recipients.

In addition, the pause on student loan payments will extend through the end of 2022, and relief like the income-based repayment plan is getting significantly more generous.

Closing the racial wealth gap

The impact of this debt on long-term financial security for people of color is substantial. A particularly in-depth Brookings Institute study estimates that Latinx borrowers owe more money on their student loans than their white peers after 12 years.

In addition, Black borrowers’ student debt more than triples after graduation compared to their white counterparts. This means that on average, Black college graduates owe $25,000 more than white college graduates. This debt makes it harder for them to pay a mortgage, contribute to a 401(k) plan, or manage a checking account.

The student loan forgiveness plan provides much-needed relief for people of color who are disproportionately affected by America’s $1.6 trillion student loan debt burden. Black households hold significantly less wealth than white households on average, requiring them to take out more loans to pay for higher education in the first place.

Research also shows that white households tend to benefit from wealth transfers early in their careers while a higher percentage of Black graduates who earn more tend to experience the reverse: They’re often the ones helping their families financially, making it even more difficult for them to build generational wealth. Other racial groups experience similar disparities in loan balance and earnings.

The disparate impact of student loan debt on people of color is one of the key arguments for widespread relief. And while advocates like the National Association for the Advancement of Colored People argue that the government should forgive a great deal more than $10,000 to $20,000, it’s still critical that people of color understand the full extent of the program and all the ways they can take advantage of it to reduce their loan burden and create more wealth for themselves.

You can read the full list of changes to see how they may help you. But here are three ways the student loan forgiveness plan can help low- to moderate-income borrowers:

1. Student debt cancelation

The most eye-catching element of the plan is broad student loan cancellation of up to $10,000 for all borrowers who meet income requirements, and up to $20,000 for borrowers who received Pell Grants to attend college (Pell Grant recipients typically come from low- or moderate-income households).

To qualify, an individual must earn less than $125,000 a year, or their household must earn less than $250,000 a year. Households will need to report their 2020 or 2021 income to meet the threshold. This may be beneficial for many, as incomes were lower during the pandemic. In addition, many student loan recipients will receive forgiveness automatically if their income data is already on file with the U.S. Department of Education; for example, if they’re in an income-based repayment program.

The student loan forgiveness application will be available in October, with the hope that all the forms will be processed in time for the resumption of student loan payments at the beginning of next year. To get the latest information, sign up for updates from the Department of Education.

2. Extended loan repayment moratorium

Included in the 2020 pandemic relief packages was a college loan repayment moratorium that was extended in 2021 and 2022. Under this moratorium, few have been paying their student loans at all for more than two years.

The recently announced relief package includes an extension of the loan repayment moratorium on monthly student loan payments through December 31, 2022. This will be the final extension, which means payments will resume in January 2023. The extension provides borrowers additional time to pay back the debt that is not canceled.

3. Income-driven repayment plans

While student debt cancellation has been getting all the big headlines, the changes to the existing support systems for student borrowers are almost as transformative. According to the White House, up to 43 million individuals will benefit from changes that make income-driven repayment plans more generous.

The new repayment rules require that all student loan repayments be capped at 5% of your monthly income, that interest payments be eliminated so that balances won’t grow for people making payments, and that remaining balances after 10 years be forgiven. Additionally, no one making up to 225% of the Federal Poverty Floor will have to make payments at all.

While $10,000 can seem like a drop in the bucket if your balance is well into the five- or even six-figure range, it’s important to pay attention to all the different ways the plan eases student loan burdens for borrowers.

There’s no question the resumption of payments in 2023 will have few fans. But whether your full debts are discharged or not, paying off your remaining balance will be much easier than it was during the depths of the student loan crisis.

This article was written by OfColor and was legally licensed through an agreement with OfColor. Please direct all licensing questions to

Go to the Upwise app

Download the app to see how Upwise can help you make financial progress you can see and feel. 

You’re one click away from building better money habits. Download the app