top of page

student loans

On Wednesday, August 24, 2022, President Biden announced changes to student loan debt relief. The biggest item of note was up to $20,000 of student loan forgiveness on federal student loans to current borrowers. Also announced was the continued delayed payment and 0% interest rate of student loans for one “final” time from December 31, 2022, until January 2023. For the payment delay, there are no steps needed to take for this; it will automatically occur.


This article is not intended to debate the merits of this announcement, but rather to walk you through the program details and resources that have been outlined at this point.


What are the eligibility possibilities for student loan forgiveness?

A borrower is eligible for $10,000 of forgiveness if they had no Pell Grants. If they had Pell Grants, then they’re eligible for up to $20,000- limited to the amount of their outstanding debt. It is not clear whether there are any requirements around the number of Pell Grants you had to receive to be eligible for the forgiveness. If you are not sure whether you received a Pell Grant, you can log into the National Student Loan Data Systems website and your previous aid will be available.


All federal student loans including Direct, FFELP, Perkins, Grad Plus, and Parent Plus qualify for forgiveness. A parent with a Parent Plus would separately have to qualify and would be independent as to whether the student borrower would qualify for the forgiveness. Private loans are not eligible for forgiveness.


If you’ve made payments/paid-off your loans since March 2020 you should reach out to your loan servicer and request a refund for those payments.


Your debt relief is capped at your outstanding balance (i.e. if your outstanding balance is $8,523 and you received no Pell grant then your forgiven amount will be limited to that amount, not $10,000).


The loan had to be disbursed before 6/30/2022 to be eligible for forgiveness as opposed to when the loan originated. Active student borrowers who were dependent students in the 2021-2022 year will be eligible for relief based on their parent’s income, not their own.


How does income affect eligibility?

Anyone who makes over $125,000 filing single or $250,000 filing joint is not eligible. What has not been released yet is:


What’s considered income? For stimulus payments, the IRS used adjusted gross income or AGI, which can be found on line 11 of your Federal 1040 form


If there’s a phase-out income range or if there’s a cliff (e.g. if you made $125,001 filing single then you don’t qualify). It appears to be a cliff.


What tax year this income limit is on? It appears it will likely be 2020 or 2021’s income.


How taxes could affect the eligibility

If by chance it is based on 2022 income, a borrower could still potentially control their income through contributions to Traditional 401(k), Traditional IRA, HSA, FSA, or Dependent Care FSA, or filling status.


If it is based on 2020 or 2021, then there could be some potential planning opportunities: someone who has not yet filed their 2021 taxes and is a business owner that can lower their AGI.


It appears that this forgiven amount will not be taxable at the federal level per the American Rescue Plan, but could be at the state level depending on what state you live in. Some states have no tax already, others replicate federal rules or some could make an exception. These laws could also change to make it not taxable. This is something we will be monitoring as well.


Do I need to do anything if I am eligible?

The loans for most borrowers would be automatically removed from their balance as the Department of Education has income on file for the majority of borrowers. For those it doesn’t, there will be a “simple” application that the U.S. Department of Education will launch in the coming weeks. If you would like to be notified by the U.S. Department of Education when the application is open, please sign up on the Department of Education subscription page.


Lastly, included in the bill was the addition of another income-driven repayment (IDR) plan. The rule lowers the required percentage of discretionary income amount of borrowers from 10% to 5% for undergrad loans and 10% for grad loans from 10-20% program dependent. The amount of income that’s considered non-discretionary is protected from repayment guaranteeing no borrower earning under 225% of the federal poverty level will have to make a payment. Loans will be forgiven where balances are less than $12,000 and have been paid for 10 years (previously 20 years). Under the IDR plan, you would not accrue any interest above what you make on a payment (even if your IDR payment is $0) so your balance would not continue to grow as it did with the other existing income-driven repayment plans.

There still could be legal challenges to this forgiveness so borrowers should not assume this is a guarantee until the eligible balance has been officially removed from their account.

If you are eligible for the Public Student Loan Forgiveness (PSLF) plan, there’s a program that you can/must apply for by October 31, 2022, to count payments towards your student loans that may have not previously counted towards the PSLF program.

2022 STUDENT DEBT RELIEF

August 26, 2022

Andrew Young

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm.  The information presented is for educational purposes only and intended for a broad audience.  The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed.  Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner. 

Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed. 

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

Election 2024: Navigating Financial Plans Amid Political Uncertainty

Read More...

Election 2024: Navigating Financial Plans Amid Political Uncertainty

John-Mark Young Earns RMA® Certification and Advanced Certificate in Blockchain and Digital Assets

Read More...

John-Mark Young Earns RMA® Certification and Advanced Certificate in Blockchain and Digital Assets

Whitaker-Myers Group Named Wooster Chamber of Commerce Business of the Year

Read More...

Whitaker-Myers Group Named Wooster Chamber of Commerce Business of the Year

Other Posts

bottom of page