Student Loan Forgiveness: Who will be affected + What you need to know
August of 2022 had a lot going on! The Inflation Reduction Bill was signed, and President Biden announced big updates for individuals with student loans.
Updates To Be Aware Of
- The student loan pause has been extended for a final time. The pause will last until the end of this year and repayments will begin in January of 2023.
- There is a proposed rule that would reduce the amount for monthly payments from 10% to 5% of a person’s discretionary income (income after taxes and other living expenses).
- The loans that are being forgiven will not be taxed at the federal level but there is a possibility of them being taxed at the state level.
Who Will Receive Forgiveness
Individuals that are currently making under $125,000 and families that are making under $250,000 will qualify for the forgiveness.
However, there are other qualifications.
Only federal loans qualify, which means if you only have private loans you will not receive the $10,000. To be considered a “federal loan” the loan must be held by the U.S. Department of Education.
Current students are eligible for the forgiveness as well. In these circumstances if the student is a dependent, the income requirements will fall on the parents (or the individuals that claim the dependent). However, student loans taken out after June 30, 2022, won’t be included in the relief.
How Much Will I Receive?
The amount that you receive will depend on the type of loan you took out:
- Pell Grant recipients will receive up to $20,000.
- All federal loan recipients will receive up to $10,000
You will receive up to the amount that is being forgiven but not more than your current loan amount. If you have $8,000 in federal loans and qualify for up to $10,000 being forgiven, you will only receive $8,000 because that is how much you still owe.
While nothing is official at the time this blog is going out, it is always better to be prepare for the possibilities that could happen. Thankfully even if the loans do not get forgive nothing has changed to you current finances or you plan.
Additional Articles and Resources
- White House Fact Sheet
- Student Debt Relief Plan Explained
- State Tax Considerations
- Fast Facts About Student Loan Forgiveness
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