On August 24, 2022, President Biden announced that, using his executive authority, the federal government will provide financial relief to millions of borrowers through a new student loan debt relief program. More than 45 million borrowers in the U.S. currently owe $1.6 trillion in federal student loan debt.1
The Department of Education analyzed undergraduates with student loan debt and found that nearly one-third of borrowers have debt, but no degree because the cost of continuing their education was too high and about 16 percent of borrowers are in default which can result in wage garnishment and harm to a borrower’s credit score.2
The loan forgiveness is targeted toward borrowers who need it most. Pell Grant recipients whose individual income is less than $125,000, or $250,000 for a married couple, will get up to $20,000 in loan relief from the Department of Education. The income tax year the government is using to qualify borrowers would be either 2020 or 2021, whichever is the lowest income year.3
The Department reports that nearly every Pell Grant recipient came from a family that made less than $60,000 per year.4 Borrowers who have current federal student loans and meet the income requirements for Pell Grant relief, but who did not receive a Pell Grant in college can receive up to $10,000 in loan relief.
Those with government-held federal student loans, including graduate school loans and Parent PLUS loans are eligible, however commercially-held FFEL-program loans are not automatically eligible, but the Department of Education has recently announced potential FFEL loan eligibility.5 Those borrowers who received funding through private loans are not eligible for this student loan debt relief program.6
The application for student loan debt relief will be available through the U.S. Department of Education starting in October. You can sign up for email alerts which will notify you when the application goes live by clicking here.7
Borrowers who have sent recent income data to the Department by filling out a FAFSA form or a recent application or recertification for an income-driven repayment plan may automatically be awarded loan forgiveness. While the Department of Education will automatically provide student loan forgiveness to around eight million federal student loan borrowers, officials in the Department of Education are advising borrowers to submit an application even if the Department has their income data on file. Once an application is filed it is anticipated that the debt will be canceled within four to six weeks.8
Biden also announced that the pause on federal student loan repayment will be extended one final time through December 31, 2022 so payments will resume in January 2023. If a federal student loan forgiveness application is in before November 15, 2022, the relief will come before the repayment pause expires but borrowers do have until December 31, 2023 to submit applications for federal student loan debt relief.
If you have questions about your student loan you may want to see the advice of an experienced CPA. A tax and accounting firm can answer questions and clarify information.
Tax Avenger in Canton is a Michigan tax and accounting firm that can help. Call and schedule a Free Consultation today.
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1,2,4 Fact Sheet: President Biden Announces Student Loan Relief for Borrowers Who Need it Most, 8/24/2022
Link: https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/
3, 8 You Can Apply for Student -Loan Forgiveness as soon as October. Here’s What to Know About the Process by Ryan Wangman, CEPF, 9/7/2022
Link: https://www.businessinsider.com/personal-finance/when-do-student-loan-forgiveness-applications-open-2022-9
5 When Can Borrowers Expect Student Loan Forgiveness Under Biden’s New Plan? by Adam S. Minsky, 9/13/2022
Link: https://www.forbes.com/sites/adamminsky/2022/09/13/when-can-borrowers-expect-student-loan-forgiveness-under-bidens-new-plan/?sh=78e582ab1004
6 How to Apply for Student Loan Forgiveness under Biden’s New Plan, by Jennifer Earl, 9/6/2022
Link: https://www.cbsnews.com/news/how-to-apply-for-student-loan-forgiveness-biden-plan/
7 U.S. Department of Education: Subscriptions
Link: https://www.ed.gov/subscriptions