Student Loan Relief: The Good, the Bad, and How You Get It

Pushing back the RBD for RMDs to age 75, as proposed in the SECURE Act 2.0, would have a few potential impacts on retirement savingsStudent loan relief is on the way but how you can you get it, who benefits the most, and what…...
September 13, 2022

Student Loan Relief: The good, the Bad, The Ugly – and How you get the good

We can all agree that college tuition costs are growing at a fast rate. Some of us might look at what we paid for all four years of college and see that it’s now what some are paying for just one year. The Biden administration stepped in to try and offer some immediate relief and bring those costs under control. Love it or hate it, and putting politics aside, the Biden administration kept true to a campaign promise to reduce and/or eliminate student debt for some, to put controls in place to stem the cost, and also to make it easier for those working in non-profit organizations to apply for total forgiveness of student debt.

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Student Loan Relief: The Benefit, In Detail 

 

So, who benefits the most? That depends on who you ask. Some will argue that the income limit is too high, and it will mostly help those who have high incomes. However, when looking at the statistics from the Department of Education, they show student loan debt is affecting lower-income families at higher rates, and that this program will target those in need. Eight million people will automatically see debt relief, because the government has all the information they need.

· ⅓ of borrowers have debt but no degree

· Almost ⅓ of seniors with student loan debt are in default

· 90% of debt relief helps those under $75,000 a year

In short, you must have held a federal loan between March 13, 2020, and December 31, 2022, and have outstanding balance as of June 30,2022. Your annual income must be less than $125,000 as an individual or $250,000 as a married couple. These figures must be reflected on either your 2020 or 2021 tax returns. If you are not receiving automatic assistance, you should apply as soon as you can. The President extended the loan repayment moratorium until January of 2023. If you have a balance, you should apply as soon as possible. But apply before November 15, 2022, so that you get relief before the January payment pause lapses, as the system could take four to six weeks to process.

Paid off your loan? Get a refund. You must have made a payment on an eligible loan between March 13, 2020, and December 31, 2022, and have had an outstanding balance as of June 30, 2022.

Which loans qualify? Here is the list: 

 

  • Direct subsidized loans
  • Direct unsubsidized loans
  • Parent PLUS loans
  • Grad PLUS loans
  • Direct consolidation loans
  • Federal Perkins loans held by the U.S. Department of Education (ED)
  • Federal Family Education Loans (FFELs) held by the ED
  • Defaulted FFEL loans not held by the ED
  • Defaulted Health Education Assistance Loans (HEAL) loans

 

If you don’t have one of those loans and instead have one on the list below, unfortunately, you may not qualify for the payment freeze:

 

  • Non Defaulted FFEL loans not held by the ED
  • Federal Perkins loans not held by the ED
  • Non Defaulted HEAL loans
  • Private student loans

Other changes are taking place as part of the administration’s student debt relief, including:

● Reduced Discretionary Income: Cuts in half how much discretionary income can be used to determine a monthly-income-based payment to 5%.

● Discretionary income: Raised the discretionary income limit to less than 225% poverty level. If you make less than $15/hour, no repayment.

● Debt Forgiveness: If you have $12,000 or less in debt, it’s now forgiven after 10 years instead of 20

● Interest Covered: If you don’t have payment, your loan amount will not increase due to interest charges.

● Non-Profit: If you’ve worked in non-profit, the military, or the government for 10 years, your loans can be forgiven through 10/31/22.

    Will I get taxed? 

    The short answer is, maybe. Some states have said yes, some no. As part of the 2021 American Rescue Plan included an exemption from taxes on student loans, IRC code 108(f)(5) which expanded the types of student loans that would be treated as not taxable for Federal income tax.

    However, some states did not adopt this new regulation as part of their tax code. North Carolina and most recently, Minnesota, will tax the loan forgiveness. As of now, the Missouri Department of Revenue has not indicated that borrowers filing taxes in the state will have to pay income tax on the debt relief.

    What if I paid off my student loans during the loan repayment pause? 

     

    If you paid off your loans in full during the federal payment freeze, you are likely still eligible for both a refund and student loan forgiveness. You can request a refund of the payments you made during the pandemic and your balance will return to the pre- pandemic amount. Once your loan amount has been updated, you can apply for the new forgiveness program. Even if you have defaulted, you may be able to qualify for student loan forgiveness. You can get more info about the Fresh Start Initiative when you click here. For more information, sign up for email announcements and be notified when more information is available when you click here.

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