Find Out if Your Are Eligible to Take Advantage of the New Program
After months of speculation, President Biden announced a new federal student loan forgiveness program on August 24, 2022.The plan will cancel a portion of student debt for borrowers who qualify and extend the national student loan payment pause through the end of 2022. The exact details of the plan are still unfolding, and there is talk of potential legal challenges, but there is enough information available to start planning ahead.
Up to 43 million borrowers may be eligible for some type of student loan relief, and it could make a substantial impact on their long-term finances. If that sounds like you, here is what you can expect from the new student loan forgiveness plan and what to do if you qualify for relief.
How Much Debt Is Forgiven?
The plan will forgive up to $10,000 for borrowers who didn’t receive a Pell Grant and up to $20,000 for borrowers who did. To confirm whether you’ve received a Pell Grant as part of your financial aid package, check your account on studentaid.gov.
The forgiveness is also capped at the total amount of outstanding debt, meaning you will not receive a refund if you qualify for $10,000 of forgiveness but only have $9,000 of debt. Those who have already paid off their debt will not qualify for retroactive student loan forgiveness.
Who Qualifies for Relief?
Single borrowers who make less than $125,000 per year, or married couples who make less than $250,000 per year will qualify for the relief. This amount is based on your adjusted gross income from 2020 and 2021.
Even if you qualify based on your income, you will have to make sure your loan type qualifies. First, only those loans taken out prior to June 30, 2022, will be included in the relief. Second, only those loans that fall under the William D. Ford Federal Direct Loan Program will qualify for forgiveness. Those include:
- Direct Stafford Loans (both subsidized and unsubsidized)
- Parent PLUS Loans
- Graduate Loans
The Department of Education is also considering forgiving some private student loans, but nothing has been confirmed yet.
How to Apply for Relief?
Borrowers will need to apply for relief if the Education Department does not already have their income information. Initial reports state that the application for forgiveness should be launched in October 2022, 2022 and borrowers will have until December 31, 2023, to apply. To receive updates about the process, visit the Education Department’s website to sign-up for emails.
If you were enrolled in an income-driven repayment plan, your earnings information may already be in the system, and you may qualify for automatic cancellation.
Once your earnings information has been received, the Department of Education estimates that it could take up to 8 weeks to process and officially discharge the debt.
Your Forgiveness May be Taxed by Your State
The Tax Foundation estimates there are seven states that could tax student loan forgiveness:
- North Carolina
Keep in mind that the details are still evolving and it’s important to double-check this information with a tax professional in your state.
What Does Student Loan Forgiveness Mean for You?
No matter what your student loan situation looks like, we believe it’s important to understand the implications of the new forgiveness program before making any long-term decisions. Whether you are still paying off your debt, or planning for future college education costs, we are here to help. To learn more about how student loan forgiveness may impact your long-term financial goals, reach out to us at email@example.com or click here to schedule a complimentary meeting.
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