Student Debt Relief Plan
By Michael Mazza, CPA, MST, Tax Manager/Shareholder
Student Debt Relief Plan
The Biden Administration and the U.S. Department of Education have recently announced a plan regarding student loan repayments as well as student loan relief. All of the details have not been released but below are key points that are currently available from the U.S. Department of Education.
Loan Repayment Extension
- The plan includes a new extension on the student loan repayments. Under the plan payments are not required to be made on federally held student loans until after December 31, 2022.
- The plan also includes targeted debt relief to certain borrowers. The U.S. Department of Education will provide up to $20,000 in debt cancellation to Pell Grant Recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients.
- To be eligible, the annual income must be below $125,000 (for individuals) or $250,000 (for married couples or heads of households).
- The borrower’s income eligibility will be based on adjusted gross income from either tax year 2020 or 2021.
- The relief is capped at the outstanding debt amount up to the $10,000 or $20,000, meaning if you are eligible for the $20,000 relief but your debt is only $15,000, then only the $15,000 is cancelled.
- For borrowers where the U.S. Department of Education already has income data the debt will be cancelled automatically. If the Department of Education does not have the borrower’s income data there will be an application to be submitted.
- Applications can be found at the Department of Education Application Page
- Borrowers can sign up to be notified as applications become available and updates are made by going the Department of Education subscription page.
- Once the borrower completes the application process, they can expect relief in 4-6 weeks. Borrowers are advised to apply before November 15th in order to receive relief before the payment pause expires on December 31, 2022. Applications will continue to be processed even after December 31, 2022 and up through December 31, 2023.
- The Department of Education is encouraging all borrowers to file an application even if they believe their income information is already known to the Department.
- The cancellation of indebtedness will not be taxable on the borrower’s federal income tax return. However, it could be taxable on their state tax return.
- Borrowers have not been required to make payments on student loans since the pandemic began in March 2020. However, if a borrower did make payments after that date, they are allowed to contact their loan service to request a refund.
In addition to the items above, a borrower may see their monthly repayment amounts adjusted if there is a balance still due after the cancellation amount. It is also possible that further guidance could be issued where repayments are calculated on an income-driven approach.
We encourage clients to continue to check the U.S. Department of Education website for any updates on the above. If you should have any questions, please feel free contact Detweiler, Hershey & Associates, P.C.Filed in: Client News