Once again, some student loan debt has been forgiven, and an extension was given on making required loan repayments. President Joe Biden and Vice President Kamala Harris, along with the U.S. Department of Education, announced on Aug. 24 that they have developed and implemented the Student Loan Debt Relief Plan to allow borrowers with student loan debt to breathe a little easier. Questions about the plan have some wondering how it will affect their taxes.
Loan Repayment DelayedBiden's plan stops the need to make repayments on student loans until January 2023, according to Kiplinger. Previously, students have not needed to make loan payments until Aug. 31, 2022, but the plan provides another extension. This extension—after several previous ones—is expected to be the final one.
Student Loan Debt ForgivenessAnother part of the Student Loan Debt Relief Plan includes forgiving some people part of their student debt. The amount to be forgiven is based on income, but most people will be eligible for student loan forgiveness up to $10,000—or $20,000 if they have a Pell Grant. Not all of the program's details have been worked out, so many questions remain unanswered.
Why Student Loan ForgivenessThe sudden appearance of COVID-19 in the United States quickly put many people out of work. Many businesses and schools shut down temporarily, disrupting daily life in this country. Graduates and students out of school were in shock because they could no longer make their payments.
Loan Qualifications for Student Loan ForgivenessForgiveness of student loans will apply only to loans held by the Department of Education. CNBC says that all of these loans fall under the William D. Ford Federal Direct Loan Program.
The program has several types of education loans under it, and all of them are eligible to receive loan forgiveness. The loans include the Direct Stafford Loans, and all of the federal student loans under the Direct program that are subsidized and unsubsidized. The Parent Plus and the Grad Plus loans under the Direct program are also eligible.
Income Requirements for Loan ForgivenessSome income requirements also must be met before getting student loan debt forgiveness. USAToday reveals that singles cannot make more than $125,000 per year, and couples cannot make more than $250,000 per year.
No Need to Rush to Apply for Loan ForgivenessYou do not need to rush to get your loan forgiveness for your federal student loan. StudentAid.gov says you will have until Dec. 31, 2023, to send your student loan forgiveness application. The Department of Education's website where applications will be accepted is not open yet. You can sign up to be notified when it does at Ed.gov.
Loan Repayment Starting January 2023President Biden is also proposing a repayment plan that will be income-driven. Borrowers can expect to pay no more than 5 percent of their monthly income, CNN says, which is half of the 10 percent expected previously.
Other Proposed Aspects of the Biden PlanAccording to WhiteHouse.gov, President Biden is not finished with his work to make getting a college degree more accessible. He continues to push to reduce the cost of a college education. He plans on making community college free and wants to double the amount given through Pell Grants. Colleges will become more accountable when they raise prices. They must also give student borrowers a quality education.
Taxes for Forgiven Student LoansThe IRS expects forgiven debt to count as income—and taxes are to be paid on that amount accordingly. Certain laws passed during the pandemic—particularly the American Rescue Plan Act (ARPA)—make taxes on student loan forgiveness inapplicable. In other words, if you receive loan forgiveness, you will not be taxed on that amount on your federal tax return—at least not until 2025.
If you have student loans, you want to pay attention to any further news about student loan forgiveness. You are the ones to benefit, and when it comes, you may be able to have a normal life again—by no longer having large amounts of debt hanging over your head.