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Q&A: Key Bullet Points Regarding College Loan Forgiveness

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The recent announcement by President Biden regarding his administration’s plans for student loan forgiveness has received a tremendous amount of attention. Below is a quick question-and-answer list of the highlights of the plan.

It is worth mentioning that there are many details of the plan that simply are not known at this time. As the process moves along, additional clarity will become available.

If you have questions specific to your situation, let us know by emailing us at Wisdom@WisdomWS.com.

  • Which student loans are eligible to be forgiven? All federally-owned student loans, including parent-owned PLUS loans, are eligible. Private loans are not included.
  • How much can be forgiven? Student loans are expected to be forgiven up to $10,000. The number doubles to $20,000 maximum debt forgiveness for Pell Grant recipients.
  • Will higher-earners be phased-out? Income limits are expected to be based on income reflected on your 2020 or 2021 tax return. The thresholds are $125,000 for individuals and $250,000 for those who filed as married filing joint. We expect the definition of income to be “adjusted gross income” as reflected on the tax return. Debt cancellation for current students will be based on their parents’ income if they are a dependent. We anticipate receiving additional guidance in this area as the program is finalized.
  • What if I made payments during the COVID-19 relief period or recently paid off the loans? You may be able to request a refund of payments made after the payment pause that started March 13, 2020. The Department of Education recommends contacting the servicer of your student loans.
  • Will you be taxed on the relief of debt if you qualify? Federal taxes will not be owed on the portion of the loan that is forgiven. While cancellation of debt typically triggers a taxable event, relief was added through the year 2025 under the recent “ARPA” legislation to make student loan cancellation non-taxable. There are some states that could impose taxes, but there is no certainty at this point.
  • Will you need to fill out an application? Again, the details aren’t all available yet, but we do expect borrowers to need to complete an application. The Education Department is targeting early October for the application release. You can be notified when the application becomes available by subscribing to the Department of Education Borrower Updates.
  • How soon could you see forgiveness? The Education Department anticipates processing applications 4 to 6 weeks after the application is submitted. Our advice is to submit your application as soon as possible.

You can find more information via the White House fact sheet and the Federal Student Aid websites.

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