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Federal Student Loan Forgiveness: Your Questions Answered | Best Colleges

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Additionally, as part of the plan, the pause on student loan payments that was instituted in 2020 in response to the COVID-19 pandemic has again been extended until December 31, 2022.

Student borrowers average about $30,000 in debt, including federal and private loans, according to US News data.

New details continue to emerge on the unique loan forgiveness program, but a lot is still up in the air. Here are the answers to some frequently asked questions.

(This page will be updated as new information becomes available.)

Current students and borrowers who have federal undergraduate, graduate and Parent PLUS loans that were distributed by June 30, 2022 are eligible for relief, says Megan Walter, policy analyst for the Association. national student financial aid administrators.

The White House announced that single borrowers earning less than $125,000 a year, or households earning less than $250,000, are eligible for a $10,000 loan forgiveness. Borrowers who fall below the income limits and who received Pell Grants in college will receive an additional $10,000, for a total of $20,000 in forgiveness.

Nearly 8 million borrowers could be eligible to automatically receive relief because their income data is already available to the US Department of Education, the White House said in its press release. Walter says the Department of Education may have the necessary data for borrowers based on information submitted for income-based repayment plans or for the free federal student aid application, known as FAFSA.

Borrowers whose income data is not already registered with the Ministry of Education can expect an application to be available in early October 2022. Once borrowers have submitted their application, they can expect relief within four to six weeks, according to the Federal Student Aid website. .

The Department for Education is advising borrowers to apply by November 15, 2022 to qualify for relief before the payment break expires at the end of December.

Borrowers will have the choice of using their 2021 or 2020 tax return information when applying for loan forgiveness, says Jared Walczak, vice president of state projects at the Tax Foundation, a nonprofit that focuses on fiscal policy. Even if borrowers have a single income over $125,000 or a family income over $250,000 at the time of the announcement, they can still qualify as long as their income in 2021 or 2020 was below the threshold, Walczak says.

For current students, the Department of Education will have income data for all borrowers who completed the FAFSA in 2021-22, Walter says. For borrowers who were dependent during the 2021-2022 school year, the Department of Education will use parental income information to calculate eligibility for loan forgiveness.

In October 2021, the Biden administration announced a time-limited waiver that eased eligibility requirements for the Civil Service Loan Forgiveness Program, which had come under criticism and investigation for its low rates. high ineligibility. Borrowers who have worked in certain nonprofit and utility sectors for 10 or more years, even if not consecutive, may be eligible for full student loan forgiveness or obtaining a credit for a discount.

This, however, is separate from the one-time student loan forgiveness recently announced by the Biden administration and will not impact a borrower’s eligibility for a $10,000 or $20,000 forgiveness, according to NASFAA.

Relief is capped at the amount of your outstanding debt, according to StudentAid.gov. For example, a student who made payments to bring their balance down to $15,000, but is eligible for a $20,000 rebate, would only receive $15,000 in relief. The Department of Education has not indicated that it will reimburse borrowers for payments made during the pandemic pause, Walter says.

That said, borrowers can contact their loan servicer to request a refund for any payments they have made since the start of the break on March 13, 2020. Borrowers should, however, be aware that accepting a refund would result in the addition of this money to the loan. balance.

While debt forgiveness is usually taxable income, it will not count toward federal income tax under the Biden administration’s plan. The American Rescue Plan Act of 2021 allows canceled student loan debt to be exempt from federal tax until 2025, Walter says. However, in some states, borrowers may have to pay state income tax on the amount of the forgiveness they receive.

While most states are aligning their income tax codes with the federal income tax codes for simplicity, adopting all changes made at the federal level, some states have to go through more paperwork to make changes or have entirely separate tax codes, Walczak says. At least six states have laws in place that could require borrowers to pay state income tax on their debt relief, barring last-minute legislative changes. Those states are Arkansas, Massachusetts, Minnesota, Mississippi, North Carolina and Wisconsin, Walczak says.

Yes. Graduation is not a requirement for debt relief, the Department of Education confirmed to US News in an email.

The Biden administration’s debt relief plan does not apply to borrowers with private student loans. Borrowers who have consolidated federal loans with a private company are also ineligible because their loans are no longer held by the federal government.

It is unclear whether defaulting borrowers are eligible for debt relief or not.

In April, the Department for Education announced the ‘fresh start’ plan which aims to help around 7.5 million borrowers avoid the negative effects of default and get back into ‘good standing’ on their student loans. federal. The initiative, according to the Department of Education, “will increase the long-term repayment success of borrowers with federal student loans in default by helping them access low monthly payments under affordable repayment plans based on income (IDR), as well as providing substantial benefits to borrowers over the coming months.

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