Photo by Charles DeLoye on Unsplash
I am sure you know by now that the Biden Administration has promised to forgive up to $20,000 in Federal student loans for qualified borrowers. If you or your student has borrowed money from the government to pay for their college education, you will want to get in line for this important benefit.
As you read this, know that I am using words like “you” and “your” when I really mean your student in most cases. For example, you might not have a student loan, but your kids do. Likewise, “borrower” refers to the student who took out the loan, but in some cases, it could also refer to the parent. Etc.
Precise details on the Student Loan Forgiveness program have been hard to come by and the language isn’t always clear. However, the US. Department of Education Federal Student Aid website is an excellent resource. You can access that website here.
Here is what I know so far:
Up to $10,000 of Federal student loans may be forgiven under this program. (Up to $20k if your student received a Pell Grant). Single people with “annual” incomes below $125,000 ($250k, if married) will qualify.
I believe the income requirement is based on the borrower’s 2020 or 2021 adjusted gross income – line 11 on your 1040, and that it’s the student or borrower’s income, not the parents’ income, that counts. So even if your student didn’t qualify for traditional financial aid for college, they may qualify for the recent student loan forgiveness program.
Federal loans are defined as loans issued by the Dept. of Education. Graduate students and Parents with PLUS loans issued by the Dept. of Education also qualify for loan forgiveness.
The Department of Education website link above lists all the loan types that qualify.
Assume nothing. Some people may qualify for loan forgiveness and need to do nothing to receive this benefit. Most borrowers, however, must apply for loan forgiveness to qualify. I recommend that borrowers assume nothing and apply for benefits anyway.
The date to apply for loan forgiveness is supposed to be this month, but so far the dates have yet to be announced. Sign up for text updates at the StudentAid.gov website.
The application process. According to the Department of Education’s website (https://studentaid.gov/debt-relief-announcement/one-time-cancellation ) you will need to follow these steps to qualify for loan forgiveness:
- Determine if you are eligible. If the borrower has a government student loan that was taken out prior to July 1, 2022, and made less than $125k ($250k for married couples) in 2020 OR 2021, they should be eligible for loan forgiveness. If in doubt, apply for forgiveness anyway.
- Sign up for text alerts through your StudentAid.gov log in .
- Subscribe to the Departments website to get email updates.
- Submit your application when it becomes available.
A few other things you might want to know:
- Watch out for scams. Follow this link to get info about avoiding student loan scams https://studentaid.gov/resources/scams
- If you paid off some or all of your loan in the past 12 months, you may still be eligible for a refund up to the $10k limit.
- If you owe more than $10k, your loan balance is reduced, and your payment should be recalculated to a lower amount.
- Refunds and/or loan forgiveness are exempt from Federal income tax, but may be subject to state income tax in some states like MN.
- The application process is estimated to take 6 weeks. We’ll see.
- The application period goes through 2023. There is no rush, but I think it's probably best not to delay. I would apply as soon as they open it up. Hopefully, they can handle the influx of apps.
- If you have any questions about the program, the website links I have provided are the best source of info.
To discuss any of the topics in this blog or to learn more about how we can help you Cross The Bridge To A Confident Retirement, please contact me through my web site mikebranch.net, call me directly at 651-379-3935 or email me at mpbranch@focusfinancial.com.