Many borrowers find themselves overwhelmed by their federal loan balance and dependent on student loan forgiveness to come through. A common question I hear from borrowers is whether they should worry about their balance if their loans are likely to be forgiven.
The answer is yes.
Certainly, there are bigger considerations—such as ensuring you’re making progress toward forgiveness and keeping your monthly bill manageable—but it’s still important to keep an eye on your balance.
Today, I’ll explain why your federal loan balance matters even if you don’t plan on paying it off, and I’ll cover the ways you can keep it under control.
1) Tax Bills on Loan Forgiveness Could be Expensive.
If you’re working toward IDR forgiveness and won’t reach it before the end of 2025, you may face a large tax bill. Many borrowers refer to this as the “student loan tax bomb.” For example, if you have $80,000 in federal loans forgiven, the IRS will treat it as though you earned an extra $80,000 that year.
I’m hopeful this policy will be reversed before 2026, but there are no guarantees. As a borrower working toward IDR forgiveness, I’m preparing for the worst and hoping for the best.
Sherpa Tip: The exception to this rule is PSLF. If your loans are forgiven under PSLF, it is not considered taxable income. This tax exception is written into the PSLF statute.
2) Your Income Might Increase
Consider this one of those “good problems” to have. You might land a great job and discover that your new salary changes the math on chasing forgiveness.
Once you’re earning enough that forgiveness no longer makes sense, your balance suddenly becomes very important.
3) Getting Married
Marriage has significant implications for federal student loan borrowers. At the top of the list are higher monthly payments for couples who file taxes jointly.
There are some workarounds, such as filing taxes separately, but in most cases, repaying federal loans is more expensive for married couples—especially if your spouse doesn’t also have student loans.
A change in marital status often means higher monthly payments. When you pay more each month, the viability of forgiveness changes as well.
4) You Could Lose Your PSLF Job.
If you’re working toward PSLF, you’re obviously counting on staying in a PSLF-eligible job. Many positions—especially those with the government—may seem secure, but nothing is ever 100%.
The good news for PSLF borrowers is that while they work toward PSLF, they’re also making progress toward IDR forgiveness. The bad news is that IDR forgiveness takes twice as long.
Worst of all, PSLF is an all-or-nothing program. Either all of your debt is forgiven under PSLF, or you get no relief at all. For this reason, I usually encourage PSLF borrowers to remain in their eligible jobs until their debt is discharged.
5) Hold Servicers Accountable.
So far, we’ve discussed events that can change the math for borrowers working toward forgiveness. However, there’s another important consideration: we should all do our part to hold federal student loan servicers accountable.
If a servicer improperly processes a payment or makes an error that causes a larger balance, it’s likely happening to more than just one borrower. By identifying and correcting servicer mistakes, we help protect ourselves, our fellow borrowers, and future borrowers from being overcharged.
6) Policy Changes Could Shift Forgiveness Math.
After writing about student loans for the past decade, the one constant I’ve observed is change.
Each new administration brings new policies, and from time to time, Congress passes student loan legislation. These policy changes could help or hurt borrowers—either way, they can alter the forgiveness equation.
For instance, suppose a new policy goes into effect that forgives up to $50,000 per federal borrower. If you have a balance of $80,000, paying off the remaining $30,000 in full might make more sense than waiting decades for forgiveness on that portion. Alternatively, if repayment or forgiveness options become more limited, your current balance could suddenly be very significant.
How to Keep an Eye on Your Federal Student Loan Balance
Staying aware of your federal loan balance requires minimal effort. Here are a few ways to keep it as manageable as possible:
- Avoid Late Fees and Interest Capitalization.
If you never miss a payment or recertification deadline, you can usually avoid added fees and capitalization. Timely recertification of IDR plans has become easier now that borrowers can automate the process. - Watch Your Balance.
Did you get charged too much interest? Was your payment processed correctly? You don’t have to check every single month, but reviewing your balance a couple of times a year is a good habit. - Use Subsidies When Possible.
If your loan accrues more interest each month than what you pay, you may qualify for a federal student loan subsidy. For example, REPAYE covered half of the excess interest, and the SAVE plan covered 100%. The future of these plans is uncertain, but it’s worth monitoring any repayment plan with a subsidy—especially if you qualify for $0 monthly payments. Among the various IDR options, choose the plan with the best subsidy.
The Mistake to Avoid
While being aware of your student loan balance is important, don’t focus on it so much that you sabotage your progress toward forgiveness.
If you’re working toward forgiveness, avoid making extra payments simply to lower your balance. Paying extra doesn’t get you any closer to forgiveness; it just means you’ll have less debt forgiven later. It’s like spending a dollar today in hopes of saving a quarter down the line—the math just doesn’t work in your favor.
