Student Loan Forgiveness in 2022

What does President Biden’s Announcement Mean for Your Student Loan Balance?

On August 24th, President Biden finally announced his student loan forgiveness plan that was a part of his campaign promises. Since then, there has been debate on the effect, clarifications on the rules and threats of lawsuits to stop the program unless it gets Congressional approval. Here is a quick summary of what we know today and how it may affect your student loan balance.

• Federal student loan borrowers will have up to $10,000 (or $20,000 if Pell Grant recipient) forgiven from their current student loan balance if they meet income limits. The forgiveness is available to borrowers with income less than $125,00 per year if single or $250,000 if married. The income limit is determined by your Adjusted Gross Income (AGI) from either the 2020 or 2021 federal tax return.

  TakeAway: As a dentist, you likely won’t qualify due to income limits unless you had a miserable 2020 or 2021 year for income.

• Only loans held by the Education Department qualify for forgiveness. Those include Direct Stafford loans, Direct Subsidized loans, Direct Unsubsidized loans, Parent Plus loans and Grad loans.

  TakeAway: Any loans held by private commercial lenders (like SoFI) are not eligible for this forgiveness program so hold off on any refinance until you determine your eligibility for forgiveness.

• The forgiveness will not be considered taxable income by the IRS but may be considered taxable income by your state.

  TakeAway: Getting $10,000 in debt forgiveness is a great deal even if you pay $1,000 in taxes to your state.

• The Education Department says it will launch the forgiveness application on their website by October 2022 and process applications within 8 weeks. The deadline to apply for forgiveness is December 31, 2023.

  TakeAway: If you qualify for forgiveness, don’t dawdle around, as forgiveness will reset your loan and interest payments for further savings.

• Only loan proceeds prior to June 30, 2022 will qualify for forgiveness. Federal loan proceeds distributed after June 30, 2022 are not eligible for forgiveness with this program.

  TakeAway:

  • Current college students who have received federal loans should apply for forgiveness before the end of 2023 and before they take a job that may push them over the income limit.

  • New college students (like my oldest child) may want to apply for a federal unsubsidized loan with the hope that this program is extended in the future.