Student Loan Debt Relief Plan
Submitted by Bond & Devick Wealth Partners on September 1st, 2022On Wednesday August 24th, 2022, President Biden announced the Student Loan Debt Relief Plan, which was proposed during his campaign. Details of the plan are still being finalized, but the main piece is the forgiveness of some student loan debt. Although this may not affect you directly, it could pertain to your child or grandchild.
This program forgives up to $10,000 per qualified borrow for federal student loans and up to $20,000 per qualified borrow for Pell Grant loans if income is at or below $125,000 for single and married filing separate filers ($250,000 married filing jointly and head of household filers).
One of the details being worked out is what income will be used to verify eligibility. It is believed that Adjusted Gross Income (AGI) from 2020 or 2021 will determine eligibility, but this could change. The U.S. Department of Education has income numbers for borrowers on Income-Driven Repayment Plans, however there are some borrowers in which the U.S Department of Education does not have their income information.
The American Rescue Act, passed last year, stated that any future student loan forgiveness would be tax-free, at the federal level, until 2025. However, the debt forgiveness may still be taxable for state income taxes. Currently, there are five states that may tax student loan debt forgiveness (Minnesota, Wisconsin, Arkansas, Mississippi, and North Carolina).
In addition to the student loan forgiveness, there were two other items in the Student Loan Debt Relief Plan:
- Final extension of the student loan payment freeze until December 31st, 2022 (student loan payments due starting January 2023)
- Proposed changes to Income-Driven Repayment Plans
The application is expected to be available by early October. It should take four to six weeks to receive the student loan relief.
Please pass this along to anyone who may benefit from reading it and feel welcome to contact our team with any questions.
Enjoy these last days of summer,
The Bond&Deivck Team
Resources:
Tax Foundation – State Income Taxes on Student Loan Forgiveness
