On August 24th 2022, a student loan relief program was announced and we have summarized key points from this action which you can find below:
- Borrowers who have income less than $125,000 for a single filer or $250,000 joint filer or head of household will be eligible for forgiveness.
- The years that are being used to measure income are 2020 or 2021. If your income was below the limits in either of those two years, you may qualify.
- Currently, these income limits appear to be a ‘cliff’ meaning that $1 more than these thresholds would have zero forgiveness (It is not yet clear if this is truly the case).
- For business owners near these thresholds who have yet to file their tax return for 2021, a contribution to a SEP IRA may put them under the required thresholds (provided no other business plan was contributed to in ‘21). Additionally, married couples who have yet to file a 2021 return may want to discuss filing separately with their accountant dependent on breakdown of household income.
- Due to the American Rescue Plan Act of 2021, most student debt discharged through 2025 will be federally tax-free. State tax may apply.
- Debt relief is per borrower and not per student meaning Parent Plus Loans are eligible for forgiveness as well.
- Maximum forgiveness amount is $10,000, and $20,000 for borrowers who received a Pell Grant of any size. Notably, the forgiveness is not for the Pell Grant (which is generally not required to be paid back) rather it is used to determine who is in greater financial need and who is eligible for greater forgiveness.
- The CARES act allowed for refunds of payments made towards eligible student loans after March 13th 2020,. If payments were made after this date and there is a balance less than the maximum forgiveness amount, than requesting a refund may increase the amount of forgiveness eligible. There is no certainty of this, as the Department of Education may limit forgiveness to the outstanding balance at the time of the announcement.
- Applying for forgiveness may require an application unless income information is already on file with the US Department of Education, which would allow for automatic forgiveness.
- To receive further updates, you can sign up here-> https://studentaid.gov/debt-relief-announcement/.
*This information was taken from sources deemed reliable and is for education purposes only. There is still some information that is needed to fill in the details and there can be some modifications before forgiveness is implemented. Additionally, there remains a significant chance that this will be challenged in the courts which may upend or alter the executive action. If you appear to be eligible for forgiveness, sign-up for updates using the link above to keep yourself informed as this develops.