The rising cost of college and student loan balances over the past several years has led to numerous discussions on student loan forgiveness, both for and against. Recent inflationary pressures have impacted the consumer’s spending power and have enhanced the pressure towards action on loan forgiveness as means to provide relief to lower income households and stimulate more spending and thus help the economy.
Regardless of the perceived impact, on Wednesday, President Biden announced forgiveness of $10,000 in student loan debt per borrower along with other initiatives in student loan reform. He also verified that the pause in payments and interest would continue until December 31st, and payments/interest would resume thereafter. Any individual earning more than $125,000 or household $250,000 of taxable income would not be eligible for forgiveness. This applies to only Federal loans, not private loans. Some other important details are listed below:
- Students’ whose parents are within the income threshold, but are still in school, are eligible for this forgiveness as long as the loan originated before July 1, 2022.
- Payments made during the interest pause period beginning March 2020 are eligible to be refunded by contacting the Federal Student Aid Website (Link Below)
- An additional $10,000 is available for forgiveness for borrowers who received Pell Grants while in college. These are given out to low income households who may not have the means to pay for college tuition.
- The loan forgiveness amount will not be taxed at the federal level.
On the forgiveness process, an important item to note is that the process will not be automatic for most. Expect direction in the next few weeks to an application process. If your income information is available with the department of education, you would qualify to have loan relief automatically without the application. With student loan interest and payments likely to resume in January, it will be important for an individual who qualifies for forgiveness to apply prior to the end of the year.
Do note that this is a fluid situation as many questions and aspects of this plan still need clarification. We are always happy to help answer questions as they relate to your families’ situation, and provide guidance on how to best navigate these changes.
Resources:Federal Student Aid website
Written by Jacob Stalder.
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