Student Loan Debt Cancellation – What You Need to Know
Recently, President Biden extended the student loan payment pause until 12/31/2022 and announced that $10,000 of federal student loans would be cancelled for those making less than $125,000 annually or $250,000 if a married couple. People who also received Pell grants will be able to apply for forgiveness of an additional $10,000 of their federal loans (total $20,000).
More details to come but here are a few key points to be aware of:
- Application will be available on the Department of Education’s website no later than December 31, 2022
- No private loans will be forgiven
- Federal Parent Plus loans are eligible
- Defaulted borrowers who were frozen are eligible for relief
- Payments for debt not cancelled resume January 1, 2023
It is estimated that nearly 20 million borrowers (nearly 45%) will have their debt fully cancelled. The White House says that the debt relief will not be counted as taxable income for federal income tax purposes. For our clients who have student loans, we recommend you apply for the forgiveness when applications become available. It would be wise to use this opportunity to channel these additional monthly funds to:
- Pay down other debt faster
- Build up your emergency fund
- Set up or increase your automatic contributions to retirement investment accounts (401k/403b, Roth, Traditional IRA)
- Fund 529’s for your children
For more information, here are the links to articles and more detailed information from the Department of Education
Articles to read:
What Biden’s student debt plan will do to the US economy – CNN
Qualify for student loan forgiveness? Explaining Biden’s new debt plan (usatoday.com)
U.S. Department of Education Information:
The Biden-Harris Administration’s Student Debt Relief Plan Explained (studentaid.gov)
