Student Loan Forgiveness: Do You Qualify?

“May Your College Memories Last as Long as Your Student Loan Payments”


Matthew McAunlty

On August 24th 2022, President Biden announced his plan to forgive federal student loan debt. Soon, millions of Americans will see a reduction or complete elimination of their student loans, and you maybe one of them. The Department of Education will be handling the forgiveness, and they have not yet released an application, but should have one ready in the next few weeks. However, there are a few qualifications you must meet in order to have your loans forgiven. First, only federal student loans qualify for forgiveness, not private loans. Federal student loans include direct subsidized loans, direct unsubsidized loans, direct PLUS loans and direct consolidation loans. If you owe Federal Family Education Loans (FFEL), they will not be forgiven since these loans are held with private companies. If you are one of the five million Americans with FFEL loans, you should try to consolidate them in to the direct loan program so they can be forgiven. Also, loans taken out after June 30th, 2022, will not be forgiven. So, any students who took out a loan after June 30th, to pay for their Fall 2022 semester, will not have that loan forgiven.

There is also an income limitation for getting forgiveness, and it is based on your 2021 Adjusted Gross Income (AGI) which can be found on line 11 of your federal tax return, form 1040. For individuals who file single, they can have up to $125,000 in AGI for 2021 and still qualify. For married couples who file joint or individuals filing as head of household, they can have up to $250,000 in AGI for 2021 and still get forgiveness. If a student has loans in their own name and are claimed as a dependent on their parent’s tax return, the Department of Education will look at the income of their parents, not the income of the dependent student. If parents took out PLUS loans to help pay for their child’s education, Department of Education will look at the income of their parents, not the student, since the loans are in the name of the parents. Even if someone’s income qualifies them for forgiveness it doesn’t mean that their entire loan balance will be eliminated. Instead, only $10,000 will be forgiven, and if the student received a Pell Grant while in school, they can have up to $20,000 forgiven. Typically, whenever someone gets a loan forgiven, they will get a 1099-C and have to count the canceled debt as income when they do their taxes. The good news is that this student loan forgiveness will not be counted as taxable income to the recipient.

Spouses and parents are considered to be separate barrowers, meaning that families can get more than just $20,000 forgiven. Let’s look at a hypothetical example. 10 years ago, John and Jane Smith sent their son Jack to Overpriced U, to study left-handed puppetry. Neither John or Jane have saved up any money for Jack to go to school due to their low incomes, but Jack was eligible to receive a Pell Grant. However, this was not enough to cover the tuition of Overpriced U, so they had to take out $10,000 in parent PLUS loans and Jack took out $50,000 in direct loans. While taking a puppetry class, Jack met his future wife Jessica, who had $100,000 in direct loans and qualified for a Pell Grant. Fast forward to today, Jack and Jessice run an unsuccessful puppetry business, making well below $250,000 per year. The family as a whole will be able to get $50,000 in student loans forgiven, $10,000 of John and Jane’s parent PLUS loans, $20,000 of Jack’s loans and $20,000 of Jessica’s, since they both had Pell Grants while attending Overpriced U.



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