You’ve probably seen the headline: Student loan forgiveness is in the air (and the air sure smells sweet) just like fall.
On Aug. 24, President Biden announced plans for student loan forgiveness and ongoing student debt relief for current and future borrowers.
The details of the plan are buried in the White House overview, but the magic number that makes the headlines is $10,000— that’s an amount that could possibly be wiped off the balance sheet.
But some questions still permeate.
- Does the Loan Forgiveness Program apply to me?
- If not, how should I prepare? If so what do i do with the extra cash?
- I have a repayment plan based on my income. What changes can be expected in loan payments?
There’s a lot to cover, so let’s take a closer look.
Are you eligible for $10,000 in student loan forgiveness?
Maybe.
The president’s primary goal with this forgiveness decision was to provide significant debt relief to low- and middle-income households exacerbated by the pandemic. Therefore, eligibility is subject to income limits.
you may make that too many
Less than $125,000 for a single filing and less than $250,000 for married filings can get $10,000 in federal student debt forgiveness.Those who attended college on Pell grants can have up to $20,000 in debt. You can get an exemption. Exemptions do not count as income, so you do not have to pay taxes on the exempt amount.
But your qualifications are not technically based on what you “earn”. Instead, it comes from your Adjusted Gross Income (AGI).
What is your AGI?
To calculate your AGI, take what you brought in for the year, such as wages, dividends, and capital gains (also known as gross income), and subtract them from deductions or adjustments such as medical expenses, eligible interest payments, and alimony. increase.etc
The Department of Education plans to take Adjusted Gross Income (AGI) data from tax years 2020 or 2021 to determine your eligibility.
Don’t remember exactly what you made years ago? Get your tax return (form 1040) and AGI should be on line 11 for him. This is conveniently located on the first page.
how to get forgiveness fast
About 8 million people will have their debts canceled immediately (because loan servicers keep tax information on file), but others will have to fill out an application with the Department of Education to claim a waiver. may need to be billed. The application has not officially started yet (expected timeframe he is early October), but it is possible. Sign up for email notifications Via their website they change you when the process goes live.
If you are eligible, you can expedite the process by submitting your application as soon as possible. The Department of Education anticipates a turnaround time of 6-8 weeks, so it’s important to apply by November 15, 2022 if you want to clear or reduce your loan balance before payments are suspended in the New Year. (more on that below).
Please note that this cancellation effort only applies to federal loans such as directly subsidized and non-subsidized federal loans, parent plus and alumni loans. does not apply to
Now you either breathe a sigh of relief or shake your head in disappointment. Either way, there are some important considerations and next steps.
When should I start paying off my student loans?
So, I have good news and bad news.
Let’s get the “bad” stuff out of the way first. Student loan payments will resume.
The “good” news is that the government has extended the federal student loan moratorium until December 31, 2022. As with previous extensions, you do not have to pay interest on the loan.
However, you should be ready to start making student loan payments by January 2023.
If you’re feeling stressed about creating a repayment plan, don’t worry. We are working on a guide to help you navigate the repayment process once payments are initiated.
What if I have less than $10,000 in debt?
This is where the word “until” appears. The Department of Education will forgive eligible borrowers up to his $10,000 or he $20,000 cap on outstanding debt.
So if you owe $5,000, you can get $5,000 in relief.
$10,000 is gone.
To be clear, this student loan forgiveness announcement is not the same as the government writing you a check. It is essential to have a plan for what this forgiveness means to you.
Ask yourself:
- Will the Forgiveness Plan Wipe Out Your Student Debt Permanently?
- Will it ultimately lower your projected monthly payments?
Whether your student loan payments are in your rearview mirror or you’re nearing your goal, you need to consider ways to reallocate all or part of the cash flow you’ve been putting toward debt.
Perhaps you:
- your emergency fundIf you’ve had to throw in some emergency cash in the last two years, now’s the perfect time to put it back together. Even a few hundred dollars a month can grow your balance simply by allocating it to an accessible and liquid account.
- pay off other debtsJust because your student loan payments are down doesn’t mean you’re automatically debt free. Look at other debts you have, such as car loans, personal loans, business loans, credit cards, and see where your previous student loan amount can have the biggest impact (Tip: It is usually the highest interest debt).
- Get the most out of your retirement savings. This debt cancellation can be the cash flow push you need to start spending the most on your retirement accounts like 401k and IRA. Increased retirement benefits can prepare you for future flexibility and financial independence.
- Increase your “fun” funds. If you’ve already done the three things above, there are other creative ways to put your money to good use. One way might be a brokerage account. Think of your brokerage account as “fun” money. You can invest and save for known or unknown future expenses, such as paying for your child’s wedding, taking care of an aging parent, or taking a six-week sabbatical.To invest regularly You set yourself up to say yes to meaningful opportunities that come your way.
- Increase college endowments. What a perfect circle moment: You can redirect cash flow from student debt cancellation to help your child avoid unnecessary debt. You may be able to increase your contribution.
And that’s just a few!
There are many ways to build wealth. The right path for you depends on your goals, values, family, etc.
What about refunds if not fully canceled?
If you’ve been making loan payments during the pandemic and are disappointed that those payments aren’t allowed, this tidbit might cheer you up.
Let’s say you made a student loan payment at any time during the “pause” (after March 13, 2020). In that case, you may be able to contact your loan servicer and ask for a refund of those payments.
This strategy is especially useful for those who are below their forgiveness threshold. Let’s say in March 2020, his student loan balance was $10,000. But even with the suspension of payments, in the last two years he paid $3,000, leaving him with a balance of $7,000.
Assuming you meet the conditions, your remaining $7,000 balance will be cancelled. But all is not lost on his $3,000 paid during the pandemic. All you have to do is call the loan servicer and ask for a refund of any payments made within the covered period and get your money back, that extra $3,000 of him is worth withholding maybe.
The future of income-focused repayment plans
Loan cancellations aren’t the only interesting news from this student loan reform. The president’s plan certainly appeals to those with income-focused repayment plans and aims to cut payments significantly across the board.
Current and future borrowers under any of the eligible income-driven repayment plans can expect the following changes:
- Cut from 10% on undergraduate loans and limit payments at 5% of discretionary income.
- Raise the bar for what counts as non-discretionary income, protecting more money from repayment.
- If the balance is $12,000 or less, we forgive the loan after 10 years instead of 20.
These updates will help ease the long-term burden of student debt. The Department of Education is also conducting a major overhaul of the Public Service Loan Forgiveness Program.Find out more about these changes and if you are eligible here.
PS If you believe your past loan payments may be subject to the PSLF, please complete a waiver by October 31, 2022.
The latest student loan forgiveness updates can affect you in many ways. So sip on a PSL (pumpkin spice latte), explore your options, and take advantage of programs that can help you reduce your debt. course.
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