posted by: Haley Becker
Student Loan Forgiveness
President Biden recently announced a plan to reduce student loan debt for millions of borrowers. In addition to loan forgiveness, he is extending the student loan pause on payments and interest through December. Payments will resume on January 1st, 2023.
This loan forgiveness is a one-time opportunity if your loans were taken out by June 30th, 2022. Here are the key highlights of the loan forgiveness plan:
Who is eligible?
- Borrowers who earn less than $125,000 for individuals or $250,000 for couples are eligible for up to $10,000 of loan forgiveness. This limit applies to AGI from 2020 or 2021.
- If borrowers received Pell Grants in college, they are eligible for up to $20,000 of loan forgiveness.
When will this take effect?
- Timing is not yet confirmed but details should be released in the coming weeks and at least prior to student loan payments resuming in January 2023
- To be notified when the process has officially opened, you can sign up at https://www.ed.gov/subscriptions
- Once the application has been completed, you can expect relief within 4-6 weeks
Do I need to take action?
- No action is required yet. Your loan servicer will send notifications when it is time to proceed with any action.
- You will have until December 31st, 2023 to apply. It is encouraged to apply before November 15th in order to receive forgiveness before the payment pause expires
- It is important to confirm your personal information with your loan provider and the studentaid.gov website to confirm they have the most up to date information.
- Beware of any scams such as phone call or emails as there could be fraudulent acts happening while this is being sorted out
What if I have private loans?
- Only federal debt is eligible
What if I owe less than $10,000?
- If you owe less than $10,000 on your loans or less than $20,000 for Pell grant recipients then you will be debt free
Are Parent Plus Loans eligible?
- Yes, the forgiveness applies to both undergraduate and graduate federal loans and to Parent Plus loans
Is the debt forgiveness taxable?
- This canceled student debt is federally tax exempt but may be taxable at the state level
What if I have already paid off my loans?
- This will not apply to balances that have already been paid off. However, if you made payments during the payment pause (beginning March 13, 2020), you can request a refund of those payments as part of the student loan forgiveness.
The administration is also proposing a rule to make the student loan system more manageable for current and future borrowers by:
- Cutting monthly payments in half for undergraduate loans. The monthly payments will be capped at 5% of a borrower’s discretionary income. Currently that rate is 10% under the most recent income-driven repayment plans. The average student loan payment will be lowered by more than $1,000 for both current and future borrowers
- Raising the amount of income that is considered non-discretionary income and is protected from repayment. No borrower earning under the 225% of the federal poverty level (about $30,578 for 2022) will have to make a monthly payment.
- Forgive loan balances after 10 years of payments. Instead of 20 years for borrowers with loan balances of $12,000 or less.
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