Loan Forgiveness Provides More Time

^{Updated October 17, 2022}

The Federal Student Debt relief program has launched a beta test of their student loan forgiveness application for borrowers up to $10,000 for all borrowers and $20,000 for Pell Grant recipients. Individuals who qualify must have federal direct loans and can check their loan status at studentaid.gov. Adjusted gross income limits are $125,000 for single borrowers and $250,000 for married borrowers. Income must be below these limits for either the 2020 or 2021 tax years.

It is indicated the application will be open until December 31^st, 2023. However, earlier is always better when applying for relief. Once you have applied, your loan servicer will contact you if income information needs to be verified. Expect a high volume of traffic on the relief application website, this could lead to occasional outages.

Earlier this week it was announced that federal student loans will be forgiven to qualifying individuals. There are many rules that go along with this forgiveness, so we wanted to present some of the major parts of the announcement in a concise way for you to share with anyone who might be impacted. There are many emotions that go into an announcement like this from the dollars and cents of it all to determining what kind of message this sends to people. We’ll let the talking heads have those debates. 

The reason why we want to share this information is because of the decision’s impact on the financial trajectories of young people. Often, when we meet with young people with debt, we encourage them to get back to zero (no debt) so they can truly begin their financial journey and  save more for retirement. We know that one of the best assets any investor has is time–and this decision helps give people a little more time.

If you know anyone impacted by this week’s announcement, please share this with them and we are happy to talk to you and your loved ones about how this may impact their financial plan.

Who Will Receive Loan Forgiveness?

• Borrowers with Government student loans only.
• No private loans will qualify.
• Current college students are eligible for relief if they have previously taken loans. Future students will not be eligible.

How Much Will be Forgiven?

• $10,000 in forgiveness for borrowers earning less than $125,000 a year, $250,000 a year for married borrowers.
• Recipients of Pell Grants, a need-based aid, would be eligible for an additional $10,000 in relief.
• If you are not sure if you received a Pell Grant while in school, you can login to your Federal Student Aid through StudentAid.gov.

What is the Income Limit?

• Those earning less than $125,000 a year for single borrowers and $250,000 a year for married borrowers.
• The Income limit is based on income through the pandemic. White House officials have indicated if either 2020 or 2021 income is below the limit, they would be eligible.
• The Department of Education has not specified whether these income limits are based on Gross or Adjusted Gross Income (AGI); however, it will most likely be off AGI. AGI is your total income minus deductions–this number can be found on your tax return.
• Current students’ income will be based on their parent’s income if they have been claimed as a dependent. If they file independently, it will be based off their personal income.

How Do I Apply for Loan Forgiveness?

• The Department of Education has indicated forgiveness will be done automatically for most borrowers based on information provided to the Department of Education.
• If you need to apply for additional forgiveness based on Pell Grants, an application is being created and will be available in the coming weeks.
• The Department of Education has created a subscription page to notify those interested when the application is available. Sign up for subscriptions here. 

Will the Payment Pause be Extended?

• Yes, the payment pause will be extended one final time through the end of 2022. Borrowers should start to prepare for payments to resume in January 2023.
• The Department of Education has indicated the application for additional loan forgiveness will be available before the end of the pause.

Does Forgiveness Apply to Graduate or Undergraduate Loans?

• It has not been indicated whether forgiveness applies to both undergraduate and graduate loans.
• The forgiveness announcement states, “loans held by the department.” It is possible this could include undergraduate, graduate, and Parent PLUS loans.

How do I Know What Loans I Took Out?

• A check through the National Student Loan Data System (NSLDS), or a credit report will tell you the amounts of loans borrowed.
• Checking with StudentAid.gov will also be the best place to see what type of loans you have and whether you received a Pell Grant in the past.

Are There Additional Changes to Loan Payments?

• Income-based repayment plans will be seeing some changes.
• Future loan payments will be capped at 5% of monthly discretionary income. This has decreased from the 10-15% of discretionary income in place for most income-based repayment plans.
• Education Public Service Loan Forgiveness (PSLF) will see some changes to payment amount required as well.

Is Loan Forgiveness Taxable?

• A provision in the American Rescue Plan of 2021 allows federal student loan forgiveness to be tax-free through 2025.

Public Student Loan Forgiveness (PSLF) Waiver Date:

• Allows borrowers to receive credit for past payments even in incorrect IBR payment plans.
• Must apply before October 31, 2022, through the PSLF waiver.

There is a great deal of information to digest with this announcement and many details to figure out. We will be following this topic closely and thinking about how it applies to the financial situation of those around you. Please reach out to your TCI Team with questions–we are here to help!

^{Please be aware of all deadlines, changing information and obligations. We are here to help you through the process but it is ultimately the loan holder’s responsibility to complete any required actions to receive loan forgiveness.}