WHAT TO KNOW ABOUT STUDENT LOAN FORGIVENESS
The Department of Education is finally moving forward with the decision to cancel a portion of student loan debt. Just recently, they have opened an online portal to apply for forgiveness. While you are able to get a head start by starting the application process now, the portal is in a ‘beta’ period to test for glitches that might occur before its widespread release.
Student loan debt has been a major topic of discussion for several years. Initially, student loan payments were paused when the CARES Act was passed in March, 2020. Since then, the payment pause has been extended multiple times. However, the White House has said that borrowers should expect to begin repaying on their loans in January of 2023. To go along with the payment pause being ended, loans will also once again start accruing interest.
Who is Eligible?
Student debt is the second largest type of consumer debt in the country, impacting 43 million borrowers and totaling $1.6 trillion. According to the White House, more than 1,600,000 individuals in Ohio alone will benefit from student debt cancellation. There are a few qualifications that need to be met in order to qualify for forgiveness; income and loan type.
Individuals that have the following types of loans (that were disbursed before June 30, 2022) are eligible for forgiveness:
Federal Direct Loans
Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans (commonly referred to as ‘Parent PLUS Loans’)
Direct Graduate PLUS Loans
Direct Consolidation Loans
Federal Family Education Loans (FFEL)
Federal Perkins Loans
Please note, these loans must be held directly at the Department of Education in order to qualify for forgiveness. Since the announcement, there have been lawsuits that have been started to try and stop the cancelling of student debt. This has impacted a large portion of FFEL borrowers, and the Biden administration has stated that it is trying to find additional avenues to provide relief to these borrowers.
The only means-testing associated with receiving student debt relief is an income limit based on your AGI. Your Adjusted Gross Income must be below the following figures, in 2020 or 2021, in order to qualify:
Single Tax Filers
Less than $125,000
Married Tax Filers
Less than $250,000
Couples that choose to file separately will need to have an AGI of less than $125,000 to qualify. It’s possible that one spouse may qualify while another will not qualify. Amending previous years tax returns could be beneficial in some instances. Also, student debt relief is based on a ‘per borrower’ basis. If you have student debt for a child via a Parent PLUS loan, and that child has loans of their own, you each would qualify for up to $10,000 in forgiveness.
How Much Is Being Forgiven?
If you are eligible for student loan forgiveness, you can expect to receive up to $10,000 to be forgiven. Individuals that received PELL Grants can expect forgiveness up to $20,000.
The amount of forgiveness is based on individual, not per couple. For example, if Spouse A owes $11,000 and Spouse B owes $9,000, Spouse A would have $10,000 forgiven and Spouse B would have $9,000 forgiven.
If you owe less than $10,000, you will be refunded up to the amount that you owe. However, if you have been making payments during the student loan payment pause (beginning March 13, 2020) you are eligible to have those payments refunded to you. For example, if your loan balance on March 13, 2020 was $8,000, and you have paid $2,000 bringing your loan balance to $6,000, you should expect to receive a full refund of $8,000.
Additional Changes To Student Loans
There are additional changes being made to some of the repayment plans associated with student loans. Income based repayment plans currently allow for a 10% cap on monthly payments based on a percentage of the borrowers discretionary income. That percentage will be changing to 5% going forward. Additionally, someone on an income based repayment plan is eligible to have their loan balance forgiven after 10 years of payment instead of 20 or 25 years, if their original loan balances are $12,000 or less.
Saving For College
While student debt forgiveness is beneficial to many current borrowers, it remains to be seen if anything will change impacting future borrowers. The cost to attend college has grown dramatically, and saving for college as early as possible is still an excellent way to reduce the amount of debt you might have to take in the future. If you would like to receive more guidance on student loan forgiveness or on how best to save for college in the future, then please reach out to us at 330-562-2122 or via our Contact Us page.