Student Loan Forgiveness
This is not a political post, so think what you will about President Biden’s executive order to tackle student debt. That said there are a myriad of questions swarming around the details of Biden’s new student debt forgiveness plan. Now everything isn’t fully cooked, but I’ve been doing a lot of reading on the topic. Let me attempt to decipher what I know, and how it may impact you or someone you love.
At the highest level if you have graduate or undergraduate student loans through the department of education, and make less than $125,000/yr (or $250,000/family) you should qualify for $10,000 of student debt forgiveness. Now if you qualify and receive Pell Grants, you also may be eligible for an additional $10,000 ($20,000 in total). Furthermore, if your parent took out Parent Plus loans, and they qualify, they too will be eligible for an additional $10,000 of forgiveness.
Private loans DO NOT QUALIFY!
Other Important details
Some other important details I think are worth mentioning. For starters, if you’ve had interest added to your outstanding loan that is part of your $10,000 eligible bonus. These interest dollars are looked at simply as outstanding loan balances, nothing more.
Next, loan forgiveness is a non-taxable event. This is huge as it simply means no tax implications for receiving the forgiveness.
If you’ve already paid off your loans, welp you are SOL. That said, if you paid them off or made any voluntary payments since March 2020 when payments were frozen, you may qualify for a refund for those funds.
Current students also may qualify for relief. However, if you are currently a dependent of your parents it is their income that goes into consideration if you are eligible or not.
Perhaps the most important detail of them all is how you actually get these funds. Well, they have not released this information yet, however, you can subscribe to be kept abreast of updates at the U.S. Department of Education website here. Make sure when signing up you click the option for Federal Student Loan Borrower Updates. Once official signups begin you should be notified of the procedure.
Finally, President Biden also extended the student loan payment freeze one final time to December 31st, 2022.
The Biggest Benefit?
Perhaps the biggest benefit of them all may not even be the potential $10,000 loan forgiveness. Also, what is being proposed is the option to elect an income-based repayment plan. Now I should preface this here, that this is the proposal with the least amount of details out, and it is not formalized. So, any comments are the best of what is currently available (or at least my best).
If elected, this plan would limit an eligible participant’s payment to 5% (or 10% if graduate school debt) of monthly discretionary income once you hit $30,000 in income. After making payments of this caliber for 20 years, your entire outstanding loan would be forgiven. Again, lots of details on the manner are still to be revealed, but this is the general gist being proposed.
The sheer magnitude of this is massive and certainly costly. Lots of questions still remain, like how to fund this. What we do know is that amount of people that will be affected is plentiful. There is currently over 1.6 trillion dollars of student debt outstanding spanning over 43 million people. Naturally, there will be a lot of people impacted by this plan.
In summary, this is putting student debt under a microscope. I’m sure, like anything else, things will bounce around in the government quite a bit. I’m not sure where everything will land, but certainly, this is the first step in addressing, perhaps, a better way for college funding in the future. I’m not sure where things will land but do feel confident that the journey of a thousand miles just had the first step.
As always stay wealthy, healthy, and happy!
If you prefer to watch our blogs instead of reading them, here is the video version: