What You Should Know About Student Loan Forgiveness?

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Nothing as major in terms of new updates this week to follow last week’s announcement, but here’s our breakdown of more of the details we know, what we don’t yet know, and some tips that might help you!

If you’re gearing up for $10,000 to $20,000 in cancellation from Biden’s announcement, here’s what you should know:

A balance under $10,000 or the $20,000 you’d otherwise qualify for?
Relief is capped at your outstanding federal debt. With the pause being pushed back to Dec 31, your chance to opt for a CARES Act-related refund is also pushed back, but that doesn’t mean you should delay! For the refund, call your (current) servicer to request it. Then, the check is sent to you by the US Treasury.

Unsure if your loans qualify for this cancellation?
Government federal-held loans are covered. Private loans and privately-held FFEL loans are not. It even covers Parent PLUS loans (yes, you can cheer)! We don’t know yet if FFEL private loans can be consolidated to count, and are awaiting clues and formal guidance.

When will cancellation actually be granted?
Studentaid.gov states that a borrower should expect relief within a 4-6 week timeline. Borrowers who need to apply are being advised to do so before November 15th to get relief before the end of the payment pause December 31st.

Will you owe taxes or get tax forms for this cancellation?
Federally, no. American Recovery Plan (ARP) is legislation that is in place through 2025, which provides this directive.
According to the Tax Foundation, up to 14 states may hit you with tax; however, there’s nothing official yet and these states may decide to conform with the federal guidelines. Servicers have received an IRS memo to not issue 1099-Cs for canceled debts that are tax-free through ARP.

How do you know whether you’d have to apply or not?
Some of the cancellation may be automatic, some not. If you have your recent income information on file with the Dept of Education recently, the relief might be automatic. If not, you might have to apply, but the official application is not yet released.

What is considered “income,” in the case that yours is already on file with the Department of Education?

We know the thresholds for eligibility are incomes below $125,000 (for single) and $250,000 (for married/head of household).
While it’s not certain, one could assume that an application for FAFSA or Income-Driven Repayment (IDR) that’s been certified to include income information for 2020 or 2021 might be enough for automatic cancellation.

If you’ve not provided recent income information by IDR recertification, FAFSA completion, or other means, you’ll be among the crew waiting for the official application!
For borrowers in Income-Driven Repayment plans: “You won’t be required to recertify before payments restart, and the earliest you could be required to recertify is July 2023” per studentaid.gov.
If your recertification date falls between now and July 2023, it will be pushed out by one year. If your date says 6/01/2023, it will move to 6/01/2024.
So, if you’re a physician who started practicing at a non-profit in 2018 and didn’t recertify payments in IDR based on full attending salary before the CARES Act pause, you might reach PSLF without ever paying based on your attending salary.