Student Loan Forgiveness
It looks like there’s a good chance that student debt forgiveness is going to come into play sooner versus later and we want to take a few minutes to give you some insight into what this new tax law will look like.
National Forbearance Period Ends on 12/31/2022:
Repayments will begin 1/1/2023:
- Over 33 months has passed without payments being required.
- As of now, this is the final extension of payments being frozen.
- New loan providers have been added; existing ones are still in place as well.
One-Time Student Loan Forgiveness:
Federal Direct Loans Only:
- Forgiveness will be up to $10,000 if no Pell Grant or up to $20,000 if borrower had Pell Grants.
- Adjusted Gross Income limit for forgiveness, in either 2020 or 2021:
- Single: $125,000
- Married / Head of Household: $250,000
- Current students may qualify for forgiveness if their parents’ income is under the limitations.
- There is no refund for any amount of unused forgiveness.
- In order to be eligible, borrowers will have to prove their income (a webpage will be available mid-October). Processing will take 4 to 6 weeks (confirmed by 11/15/2022).
- Loans taken after 6/30/2022 will not be eligible for forgiveness.
- Federal: Per the press release, there will no Federal tax on the amount forgiven
- Some states are considering taxing the forgiveness as income to the recipient.
- Will tax: MS, NC, IN
- Considering taxing: MN, WI, AK, WV
New Income-Driven Repayment Plan:
- Will need congressional approval:
- Reduces payment to 5% (down from 10%) of Adjusted Gross Income (AGI) for an income-driven plan.
- Possible forgiveness after 10 years if the loan balance is below $12,000.
- Interest on outstanding loans may not continue to accrue under this proposed payment method.