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On August 24th, President Biden signed an Executive Order providing student loan relief to as many as 15 million borrowers. Here is the information that I know as of August 25, 2022. It is subject to change as the Department of Education sets up the process to meet the requirements of the Executive Order.
The High Level Overview
The 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.
Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).
What About My Monthly Payments
The President extended the pause on federal student loan repayments through December 31, 2022. Borrowers should expect to resume payment in January 2023. The news release from the White House used the phrase "...extended one final time...", so it is not reasonable to expect any further extensions on the deferral of payments.
How Will I Apply?
It is too early to know. The President has ordered the Department of Education to "quickly and efficiently" setup a simple application process to borrowers to obtain relief. The application is to be made available by the end of 2022.
Good News: The Department of Education estimates they have the income data of 8 million borrowers, and should be able to automatically qualify these borrowers for relief.
You can subscribe on the US Department of Education webpage to be notified when the application portal is open. Register here.
I Read That Debt Forgiveness is Taxable?
While debt forgiveness can be taxable, the American Rescue Plan of 2021 made student loan debt forgiveness in years 2021 - 2025 tax free. Further, the Internal Revenue Service promulgated that no 1099-C forms should be issued in these cases. At this time, I don't believe the forgiveness will affect your tax filing, but see below regarding some planning considerations.
Other Benefits Made Available by the Executive Order
In a future e-mail, I will address changes made to the federal student loan program which make monthly payments more manageable.
The Executive Order also made improvements to the Public Service Loan Forgiveness Program. If you have worked for the military, federal, state or local government for 10 or more years, you might be eligible for forgiveness of your education debts. You need to act by October 31, 2022. If you need help with this, please call or e-mail the office.
Shouldn't I Wait to File My Taxes?
The continuing stream of 'more' and 'better' stimulus type benefits from the federal government has made taxpayers wary to apply for things immediately, as something better might be offered. This includes their income tax filings.
- If your income will be below the $125,000 (single) or $250,000 (married) threshold, I don't see a reason to delay your tax filings.
- If your income EXCEEDS these thresholds, I don't see a reason to delay your tax filings.
- If your income is around these thresholds, consider scheduling a planning meeting to see if there are opportunities to get your income below the threshold.
DISCLAIMER
Thank you for reading this e-mail. Information contained herein is based on what is known publicly as of August 25, 2022. I expect the Department of Education to release additional information as they fully implement the described programs. Tax planning is individual specific. Your individual facts and circumstances dictate your planning options.
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