Home Views Student Loan Forgiveness for ODs

Student Loan Forgiveness for ODs

By Natalie Hayes Schmook, MBA, CFP, CVA

Political opinions aside, this week’s announcement on student loan forgiveness was a big one, and affects a lot of ODs. When released, it may have raised more questions than answers, so I have attempted to compile all relevant information here, in a question and answer format, so you can easily identify what affects your personal situation.

WHAT KINDS OF STUDENT LOANS ARE BEING FORGIVEN?

Federal student loans only in the amount of $10,000 per borrower and Pell Grants up to $20,000 per borrower. These include undergraduate, graduate and parent plus loans. Unsure if your loan is federal? You can find a list of servicers here.

To see if you have a Pell Grant, go to studentaid.gov and look at the “My Aid” section. This breaks down what type of aid you received.

There are exceptions though. Forgiveness only applies to single tax payers whose adjusted gross income (AGI) was less than $125,000 per year or married filing jointly/head of household couples making less than $250,000 per year. I have not been able to find specific information on married filing separately.

The limits apply to income for either the 2020 or 2021 tax year. You can use the lower AGI year to qualify even if you don’t qualify in the other year. If you are behind filing tax returns, get on it! Look at line 11 on your tax return to find your AGI.

HOW WILL LOANS BE FORGIVEN?

It sounds like most of them will be automatic. For anyone who isn’t forgiven automatically, there will be an application available in early October.

IS FORGIVENESS TAXABLE?

At the federal level, no, which should be a huge relief to anyone this program applies to. There are 13 states that will need to address their tax codes for forgiveness to not be taxable: Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia and Wisconsin.

WHAT IF I LESSENED/PAID OFF MY LOAN BELOW THE $10,000 MARK DURING DEFERMENT?

For those who paid their loans below the $10,000 mark, extra payments should be returned with no questions. Although I can’t see where paid off loans are addressed, I would expect those to get reimbursed too, but it might take some time.

WHAT IF I REFINANCED MY LOANS? I can see a number of folks cringing at this one. As of right now, it appears you are out of luck. I confess I was a propopnent of refinancing with lower rates. Wondering out loud, I’m not sure servicers can tell the difference between a payoff and a refinance, so keep an eye out for the possibility of getting the $10,000 from a payoff scenario, then applying it to a private loan.

WHAT ELSE SHOULD I KNOW?

Student loan deferrals are officially postponed until December 31, 2022 with payments resuming in January. President Biden is also working on a program to revamp how federal loan forgiveness programs are addressed on an ongoing basis to include lower income calculations and reducing the forgiveness program timeframe from 20 years to 10.

 

 

*Please note this is very new information and not all the details are worked out. All information above is accurate to the best of my knowledge but subject to error.

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