Are you among the millions of people who have Federal student loan? In August 2022 Vice President Biden made public his plans to offer specific forgiveness for student loans to help alleviate the financial strains that result from the Covid-19 epidemic. The idea is to provide the financial aid to millions of students who have incurred student loan debt.
In the present there are no loans cancelled due to legal issues that are in process However, it’s not a bad idea to consider enrolling in Department of Education updates to ensure you’re alerted when applications begin again. This is an updated look at what’s happening and what you should do.
What exactly is The Proposed Debt Relief Plan?
In case you have missed these specifics In case you didn’t, the plan for student debt reduction in the federal program is comprised of three parts.
1. Forgiveness of loan
The program forgives up to $10,000 in credit for people who did not receive the Federal Pell Grant, and up to $20,000 for those who received the Pell Grant.
2. New income-driven payment plans
HTML0To help make student loan repayments easier to manage to manage, the Department of Education is also proposing a new repayment plan that reduces monthly payments by limiting repayments up to 5 percent of the individual’s disposable income. Current income-driven plans have a minimum requirement of either 10% or 15 percent from discretionary earnings.
The second objective is to improve and broaden this Public Service Loan Forgiveness (PSLF) program in order to provide an appropriate amount of credit to everyone who has worked for nonprofits or the military, as well as in state, federal and tribal, local, or local government positions.
3. Community college for free and an expanded Pell Grant
The third goal is to make higher education affordable by making the community college free, and by doubling what is the max Pell Grant (the 2020 maximum Pell will be $6,895).
What’s happening with Debt Forgiveness at this Point?
As of now currently, it appears that the U.S. Department of Education isn’t able to offer one-time debt relief, while the lawsuits filed from six States are being resolved. The one-time debt relief for pandemics is halted due to an injunction imposed by the appeals court.
If you’re not yet completed the application keep an eye out for updates coming from the Department of Education indicating the portal is now open.
How do I qualify for student loan forgiveness?
Not everyone qualifies for one-time debt relief. You must earn the minimum:
- Individuals who earned under $125,000 by 2021 or the year 2020 (don’t have to meet the threshold for the two years)
- Families who earned lower than $200,000 in 2021 and 2020 (don’t have to meet the requirements for each year)
Based on the StudentAid.gov website Income requirements are calculated dependent on your Adjusted Income (AGI) which is listed on line 11 on your tax return 1040. In most cases your AGI is higher than your income total.
What kind of loans are considered eligible?
The majority of federal loans are eligible for federal loans, including undergraduate direct loans Graduate PLUS, Parent PLUS loans that are disbursed prior to July 1st 2022. (Yes, parent borrowers qualify too!) Go through the Studentaid.gov info for more information on the eligible loan types and date of disbursement.
Any loans that are disbursed on or after the 1st of July, 2022 isn’t qualified. Additionally, private loans aren’t eligible.
I’ve heard I can get Refunds on Payments I’ve made in the past Does that really happen?
You could be eligible for a refund , based on your circumstances. This is how it is done. If you have made payments prior to March 2020, and your current amount on your loan is less than what amount in debt relief that you receive. These payments are eligible to receive a refund in the amount of the amount you paid and the amount you could receive under an aid program. March 2020 was the date that the administration forbearance program in the federal government came into effect. If you have made payments on your loans or paid them off in the outbreak, you are able to claim a refund for the amount of these loans in what amount that you are entitled to from your service provider.
Consider an example of an individual who is eligible to get $20,000 of debt relief. The borrower had initially one loan of $15,000 but made $5,500 between the months of March and April 2020 and March 2019, leaving a amount of just $10,000. This is less than the amount of debt relief that the borrower is entitled to and thus, the borrower is eligible to receive a cash refund of $5,000 of the loan payments made during this period of time — as well as up to $15,000 in loan forgiveness.
Do I have to pay taxes on forgiven student loans?
It’s not the case everywhere However, it will depend on the state you live in. Congress has eliminated taxation regarding student loan debt forgiveness up to 2025. Some states are planning to tax forgive student loans (notably Indiana and Mississippi) therefore you must keep an eye on the laws in your state.
How do I apply and When is Deadline?
If the application is reopened it is extremely easy. You can fill out the simple form through the Department of Education website. The application requires the name of your child, Social Security number, date of birth, as well as the contact details (email and telephone number). After that, you must confirm that your income is eligible by ticking a box and signing your digital signature. That’s it. The procedure takes only about a couple of minutes.
For certain borrowers, you do not be required to fill out any form whatsoever. According to the studentaid.gov website states, “If you completed a Free Application for Federal Student Aid (FAFSA(r)) form for the school year 2022-23 or you are participating in a repayment plan that is income-driven that is based on your 2021 or 2020 income, you might be eligible for relief , without needing to apply.” If you’re eligible for automatic student loan relief but you don’t wish to take part then you should get in touch with the loan servicer directly and inform them that you’re refusing to participate.
For those who are eligible for relief for relief, The Department of Education may request additional details (including evidence of income) should it be required. In the event that you are a dependent in college during the time of the pandemic You are still eligible to receive the exact amount in debt relief however, either or both parents’ earnings are used to prove an income threshold, not your own.
The deadline for applying is December 31, 2023.
The Department of Education will start accepting relief requests when they are approved.
What’s the Deal with the Current Payment Freeze?
The current deferment or freeze on loan payments was set to end on December 31 2022, but it got extended again in response to delay in implementing the once-in-a-lifetime debt relief. As per the Biden-Harris Administration “Payments will resume for 60 day after the Department has been granted permission to begin implementing the plan, or the dispute is solved. If the program hasn’t be implemented, and the lawsuit is not completed until July 30, 2023, the payment will resume 60 calendar days following the date that has been set.”
Have you considered how you’ll handle your student loan debt after the freeze on payments expires in the coming year? Many people are from the routine of planning to cover this cost. It’s essential to ensure you’re using the correct repayment plan for your income as well as loans. We offer confidential and secure guidance for students that is available on the internet and by phone. And the best part? Student loan counseling is absolutely free until March 31st 2023. Get started now!
