That’s because they make payments based on their discretionary income and household size. Buchanan said the servicers hadn’t yet received any guidance on when or how payments should be recalculated.īorrowers already enrolled in income-driven plans, however, generally won’t see their payments change - even if a portion of their debt is canceled. You should receive a billing notice at least three weeks before your first payment is due, but you can contact your loan servicer before then (online is more efficient) for specifics on what you owe and when payment is due. Will payments start again on my remaining balance? My debt exceeds the amount I am eligible to have canceled, and my loans have been on pause since that relief began in March 2020. The maximum potential tax bill - for a typical borrower with $10,000 in canceled debt - would vary by state, ranging from $300 to roughly $1,100, a Tax Foundation analysis found. The final count could be smaller, however, if states make legislative, administrative or other changes, the group said. But it appears that at least 13 states have the potential to make erased student debt subject to state income taxes, according to the Tax Foundation, an independent nonprofit tax policy organization. Some states will track the temporary federal rule that exempts canceled student debt from federal income taxes. Possibly, but that depends on where you live. Discharged debt is usually taxable as income, but a temporary tax rule created an exception: Student loan debt forgiven from 2021 through 2025 doesn’t count toward federal taxable income. Will I have to pay federal taxes on the canceled debt? If you get a message that you suddenly have a zero balance or that your balance has fallen by $10,000 or $20,000, take a screen shot and print it out in case it somehow changes later. Given how many millions of people are involved and that billions of dollars are at stake, there are bound to be hiccups. Watch for messages from your loan servicer and be wary. How can I be sure that the cancellation has really happened? So you should have an application in by early November to get your relief before the bills start coming again. Once you apply, it should be no more than six weeks until your balance falls by whatever amount you’re eligible for.Ī tip: The payment pause that has been in effect since 2020 is supposed to expire at the end of this year. The department will stop taking applications on Dec. It’s fine to apply even if you think the department has your latest tax information.
You can sign up to receive an alert when it’s ready. Close to eight million borrowers “may” be eligible to get this automatic relief, according to the department.įor everyone else, the department intends to have a “simple” application available by early October. Still, keep an eye out for guidance from your servicer. If you’re already enrolled in some kind of income-driven repayment plan and have submitted your most recent tax return to certify that income, your loan servicer and the Education Department know how much you earn and you should not need to do anything else. How do I apply for student loan forgiveness? Or does it happen automatically?
PLUS loans are also available for graduate students, and these, too, are eligible. The federal parent PLUS loans are eligible. If it doesn’t have that data, there will be a process by which you can prove your change in status. If your status changed in the middle of this year - say, because you graduated - the department has administrative data for many people that will allow it to recognize the change. But if you were a dependent during the 2021-22 school year (and it’s the Department of Education’s definition of the term “dependent” that governs here, not the definition for federal tax purposes), eligibility depends on parental income, not your own. The department encourages people who may not want to consolidate to “sit tight” and await word on this effort.
loans, with the intention of making cancellation available for the borrowers who have those loans. The Department of Education is working with the outside entities that oversee the cancellation-ineligible F.F.E.L. You can still consolidate now the June 30 deadline we mentioned above does not apply here. First, you can consolidate them into a federal direct loan. If they were not eligible for the pause, then they’re not eligible for cancellation right now.īut you will likely be able to make them eligible in one of two ways. loans, or Federal Family Education Loans, were eligible for the payment pause that began in 2020, they are already eligible for this new cancellation offering. Only federal student loan debt is eligible.