President Biden announced a plan to forgive thousands of dollars in federal student loans for borrowers. Student debt has skyrocketed in recent years as the cost of four-year public and private college has nearly tripled since 1980. Federal support has not kept up. Biden’s student loan relief plan offers debt relief as part of an effort to address the burden of growing college costs.
How much student debt is being forgiven?
Those who received Pell Grants, are eligible to have up to $20,000 in federal student loan debt canceled. Pell grants are available to low-income undergraduate students who have great financial needs. Generally, Pell Grants don’t have to be repaid unless a student failed to complete their education. Although, many low-income students need to take out additional loans to enroll. Those who have not received Pell Grants will get up to $10,000 in forgiveness.
Who qualifies for forgiveness?
The Biden administration said it is limiting debt forgiveness to those who make an income of less than $125,000 a year. For married couples the income limit is $250,000, anything under that qualifies them for forgiveness. When applying for federal student loan relief, borrowers can provide either their 2020 or 2021 tax return report as a reference to their income.
How can I apply?
Taxpayers with federal student loan debt cannot yet apply for forgiveness. The Department of Education is working on an application process, and it may not be available until the end of 2022. The Department of Education is extending the federal student loan payment pause, which has been frozen since 2020 and is set to reopen on January 1st, 2023.
Those who receive federal student loan relief will not need to pay federal taxes on their forgiveness as it will not be treated as taxable income. However, you may still be on the hook for state levies. Check with your accountant for further information regarding your state.
Parents with Parent PLUS loans are also eligible. Current students with federal loans can apply for forgiveness and students who are dependents will use their parents’ income to determine whether they are eligible for forgiveness.