Student loan borrowers got some good news on August 24, 2022. On that day the Biden administration announced a student loan relief program that will forgive up to $10,000 of student loan debt for borrowers (and up to $20,000 of forgiveness for recipients of Pell Grants) under certain income thresholds. Additionally, it was announced that the federal pause on student loan repayment will be extended one final time to December 31st, 2022.
What does “Up to $10,000” mean?
The loan forgiveness amount is capped at the amount of debt outstanding, meaning that the amount forgiven will be the lower of the outstanding loan or $10,000.
Student loan borrowers who earned less than $125,000 (single filers) or $250,000 for married filers in either 2020 or 2021 could see up to $10,000 of their federal student loan debt forgiven. If a qualifying borrower also received a federal Pell grant while enrolled in college, that individual is eligible for up to $20,000 of debt forgiveness.
Only Federal loans, funded by June 30, 2022 qualify for forgiveness. Privately held loans, are not eligible for forgiveness regardless of the borrower’s income. Federal loans taken out for graduate school are eligible for relief, as are Parent Plus Loans. In the situation of Parent Plus Loans, the debt relief qualifications are that of the borrower, not the student. Current students are eligible for relief as well. However, if the student is currently claimed as a dependent on their parents’ income tax return, their parents’ income will be used to determine eligibility.
I qualify, how can I apply and when should I expect forgiveness?
The Biden administration is expected to release a simple application form which each borrower needs to submit before December 31st to apply for forgiveness. The application is expected to be available in October. If a borrower will want forgiveness prior to January, when payments resume, they will need to submit the application no later than November 15th. For borrowers already on an income driven repayment plan, an application should not be needed, as the administration will already have your tax information on file.
Should I expect to pay taxes on the amount of my forgiveness?
No, at least not at the Federal level. Certain states will apply state taxes on the amount of the forgiveness.
I paid my loans off, what about me?
Borrowers who had a student loan balance as of March 2020 may be eligible for reimbursement. According to the Department of Education, they will need to contact their loan servicer to request the refund. The refunded amount will reappear in your account as a loan balance. It is important to keep in mind that by initiating a refund means that you have a balance again and you will have to start repaying that balance — with interest — once the pause ends on December 31st, if the loan is not yet forgiven by that time.
Contact The Foundry Financial Group to learn more financial planning strategies to efficiently pay off your loans and incorporating your student loan repayment plans into your broader financial plan.