President Biden recently announced additional student loan debt relief. The additional relief consists of one last loan repayment pause until December 31, 2022 and more significantly, a broad based forgiveness of a portion of certain tax payer’s federal student loan debt.
Taxpayers that earn less than $125,000 as individuals or $250,000 for married couples or heads of households are eligible for student debt cancellation. Earnings are based on adjusted gross income (AGI). The eligible loans must have been taken out before June 30, 2022. Eligible borrowers can receive up to $10,000 of debt forgiveness while those that received Federal Pell Grants are eligible to receive up to $20,000 of debt forgiveness.
Additional things to know:
- Typically, forgiveness of debt is treated as taxable income. Currently, cancelation of student loan debt is excluded from income through 2025 as a result of the American Rescue Plan.
- Not all states conform with the Federal rules on forgiveness of debt. Arkansas, Minnesota, Mississippi, North Carolina, and Wisconsin do not. Residents of these states need to be clear on the tax treatment of their debt forgiveness.
- Currently federal loans that qualify for the debt repayment pause should also qualify for forgiveness. There is discussion that additional loans, such as Perkins loans, will be added to the list of those eligible for forgiveness.
- Relief is automatic for borrowers whose income is on file with the Department of Education (DOE). While those whose is not will have to apply. Applications are expected to be available by early October.
- Borrowers will be eligible for no more than the amount of their outstanding debt, capped at $10,000 and $20,000 for Pell grant recipients.
Borrowers can receive updates through https://www.ed.gov/subscriptions.
If you should have any questions, please contact Mark Flanagan of Aronson’s Compensation and Benefits Practice at 301-231-6257.