Student Loan Forgiveness: Do You Qualify?
“May Your College Memories Last as Long as Your Student Loan Payments”
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.
ABOUT SGROI FINANCIAL
Sgroi Financial is a full service, independent financial planning firm proudly serving the Western New York area since 1971. We offer services that will help you achieve your financial goals including retirement planning, investment management, estate planning, college planning and insurance. We help individuals, families, retirees, working adults, young adults and business owners.
Check out the background of our investment professionals on: BrokerCheck
Securities offered through Cadaret, Grant & Co., Inc., member FINRA/SIPC. Advisory services offered through Sgroi Wealth Advisory Group LLC, an SEC Registered Investment Advisor. Sgroi Wealth Advisory Group LLC, Sgroi Financial LLC, and Cadaret, Grant & Co., Inc. are separate entities.
Due to various state regulations and registration requirements concerning the dissemination of information regarding investment products and services, we are currently required to limit access of the following pages to individuals residing in states where we are currently registered.
Financial Professionals associated with this site are registered to conduct securities business and licensed to conduct insurance business in certain states. Response to, or contact with, residents of other states will be made only upon compliance with applicable licensing and registration requirements. The information in this website is for U.S. residents only and does not constitute an offer to sell, or a solicitation of an offer to purchase brokerage services to persons outside of the United States.