tax deductions and adjustments, including 401(k) contributions.
How would the government know what my income was?
The Department of Education claims it already possessed income information for roughly 8 million borrowers, possibly via financial assistance forms or income-driven repayment plan applications. Those debtors will immediately obtain debt relief provided they fulfill the income requirements. Other borrowers will need to petition for student debt forgiveness if the Department of Education doesn’t have their income information on file.
When will I be able to apply for forgiveness?
The application will be online in early October. Subscribe to be alerted when it’s accessible on the Department of Education’s website. After applying, debt relief takes four to six weeks. Loan servicers will notify borrowers when the reserve has been implemented.
Apply before December 31, 2023.
Will I have to pay taxes on the amount of debt canceled?
Last year, Congress enacted the American Rescue Plan Act, which exempts forgiven student loans from federal income tax.
Some debtors may have to pay state income tax on the amount of debt forgiven. According to the Tax Foundation, several states may tax discharged debt if legislative or administrative reforms aren’t implemented beforehand. The tax burden might be hundreds of dollars, depending on the form.
Will the loan forgiveness trigger taxes?
Student debt forgiveness isn’t taxable. According to a White House information sheet, the American Rescue Plan of 2021 made student debt forgiveness tax-free until 2025.
Before submitting your state tax return, get an estimate from a tax specialist.
Which loans qualify?
The overwhelming majority – around 37 million borrowers – will be eligible for forgiveness depending on their loan type (and income limit) since their debt is under the William D. Ford Federal Direct Loan Program. That covers Stafford Loans and subsidized and unsubsidized Direct student loans. Parent Plus and Grad Loans are eligible under Direct.
It gets trickier. The Education Department first claimed its loans qualified, but now 5 million borrowers with commercially owned FFELs may have been excluded. These debtors also missed the pandemic-era payment pause.
A representative for the Department said it is currently exploring methods to engage with private lenders to erase