On August 24th, President Biden announced that anyone who has federal student loans will soon see up to $20,000 in debt forgiveness.
If you have federal student loans, you must meet all of the criteria listed below to be eligible:
- You must have current outstanding debt on federal student loans, including parent PLUS loans, obtained before June 30, 2022.
- You must earn less than $125,000 a year for individuals or $250,000 for married couples and/or heads of households.
- Current students who are dependents must use their parents' or legal guardians' income to determine eligibility.
- Federal loans taken out for undergraduate, graduate, and/or professional degrees qualify.
- If you didn't finish your degree, you still qualify
- If you defaulted on your federal student loans, you might still qualify for debt relief.
- If you continued to make payments on federal student loans during the payment pause starting in March 2020, or if you paid off those loans during the payment pause, those payments may be refunded.
- If you secured federal loans after June 30, 2022, or if you already paid off your student loans before March 2020, you do not qualify.
- If you have only private student loans, you do not qualify.
What About Debt Paid off During the Payment Pause
Since March 2020, student loan debt payments have been paused. Despite this, borrowers have still made at least one payment since April 2020 due to the freeze on interest rates for student loans. Borrowers who paid off their debt during the loan pause still qualify. They will need to contact their loan servicer and request a refund.
What About Ffel Loans
The Department of Education has not yet released any details on how this debt forgiveness program will affect FFEL borrowers. Experts are relatively certain that any federally held FFEL loans will qualify like any other federal loan. Borrowers may need to consider consolidating their loans into the Direct Loan program to qualify.
Are Canceled Loans Taxable
No, borrowers will not have to pay any federal taxes for discharged loans. Some states, however, may require taxes to be paid on discharged loans. According to the Tax Foundation, states with these requirements include:
- North Carolina
Do Pell Grant Amounts Matter
All Pell Grants are eligible for a $20,000 refund. There are no stipulations on how much in Pell Grants someone must have in order to qualify for the cancellation amount.
Does the Plan Affect Future Loan Repayments
Biden's plan extends the student loan repayment pause through December 31, 2022. Repayments will begin in January 2023. The administration has expressed a desire to implement a rule that would alter the current plan that is dependent upon income. Under the proposed rule, borrowers would pay no more than 5% of their discretionary income monthly on undergraduate loans instead of 10%. Loan balances of $12,000 or less would be eligible for forgiveness after 10 years of payments instead of 20 years.
The rule is also designed to raise the amount of income that is considered non-discretionary. The rule would then cover the borrower's unpaid interest monthly so the balance would not grow as long as monthly payments are being made.
How to Apply
The application will be available this month. You should be notified when the application is open on the Department of Education's subscription page.
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This article was produced and syndicated by Wealth of Geeks.