What to Know About Biden’s Student Loan Debt Relief Plan
On August 24, 2022, President Biden announced his long-awaited plan to cancel student debt for millions of borrowers. While critics will argue that this bill did not do anything to bring down the high costs associated with higher education, the debt forgiveness will provide relief to many that are scheduled to resume paying their student debt in January.
Here are a few quick takeaways of what we know so far:
Private Loans Do Not Apply- Only federal loans that were funded by June 30, 2022 will be eligible to be cancelled. This includes loans taken out for graduate school and Parent Plus Loans. Privately held student loans are generally not eligible for forgiveness.
Income Limits- Borrowers are eligible for up to $10,000 of debt to be cancelled if they made under $125,000 for single individuals and $250,000 for married couples in years 2020 or 2021. Income only needs to be below this threshold in one of these years, not necessarily both. Up to $20,000 for Pell Grant recipients will be forgiven, with these same income thresholds. Based off other government programs, income levels will most likely be based on Adjusted Gross Income (AGI) although this has not been announced yet.
Tax Liability on Debt Forgiveness- It doesn’t look like the federal government will tax the amount that is forgiven, but some states are already talking about treating the debt forgiveness as income. New York is one of those states.
How Can You Apply for Forgiveness- If you already have income information on file with the US Department of Education you may automatically receive the forgiveness if you are eligible. For those that will need to apply, the Department of Education has stated that they will launch the application “in the coming weeks.”
If you have federal student loan debt and are waiting for more details to see how to apply for loan forgiveness sign up at the Department of Education subscription page to be notified when the process officially opens. Click here
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Securities offered through LPL Financial, Member FINRA / SIPC. Investment advice offered through Stratos Wealth Partners, Ltd, a registered investment advisor. Stratos Wealth Partners is a separate entity from LPL Financial.