Contributed by: Kali Hassinger, CFP®, CSRIC™
On Wednesday, August 24th, President Biden announced a highly anticipated plan to forgive a portion of student loan debt for approximately 43 million borrowers. He also extended the pandemic-driven student loan repayment freeze through the end of the year.
For single taxpayers making less than $125,000/year and Joint or head of household taxpayers making less than $250,000/year, $10,000 of their current student loan balance will be forgiven. For those with Pell Grant debt who meet these income requirements, $20,000 will be forgiven. Pell Grants were given to students with "exceptional financial need." The annual amount of this type of grant awarded is capped at $6,895 for the 2022-2023 school year, and the limit has historically been lower with slight increases each year.
Regardless of the loan type, the amount forgiven will be tax-free. However, whether eligibility will be phased out based on income or a cliff (meaning income $1 over the limits would eliminate eligibility) is unclear.
Loans taken out after June 30th, 2022, will not qualify for this relief. However, current college students who are still considered dependents will be eligible for forgiveness based on their parent's income.
Details on how to apply for forgiveness are still pending, with the understanding that an application will be available before the December 31st repayment freeze ending date. The need to submit an application and certify income will likely be required. Those repaying their student loans through an income-driven repayment plan must certify income yearly. There's also the possibility that some portion of loans will automatically be forgiven if the Department of Education has current and relevant income data. We expect that additional and more detailed guidance will be released in the coming weeks.
Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Kali Hassinger, CFP®, CSRIC® and not necessarily those of Raymond James.
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