The White House has announced a new student loan relief plan. Here’s what’s happening now and what may come later.
Table of Contents
This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
$10,000 Student Loan Forgiveness
Through executive order, the Department of Education is immediately canceling $10,000 in student loan debt for borrowers with an income under $125,000 ($250,000 for joint filers). If you received a Pell Grant, the forgiveness increases to $20,000 instead of $10,000.
The application process will be announced at a later date. If you already certify your income for income-based repayment plans, forgiveness should be automatic.
Normally, the income used for student loan relief is your Adjusted Gross Income.
Student Loan Payment Pause
The COVID-19 student loan payment pause is extended through December 31, 2022. The announcement says that this is the final extension.
The forgiveness plan is expected to be finalized before the pause ends.
Joe Biden has also proposed further changes to the student loan program that would require legislation to happen:
- Forgive loans of $12,000 or less after 10 years instead of 20
- Reduce undergraduate income-based repayments to 5% of discretionary income instead of 10%
- Raise the amount of income that’s considered non-discretionary when calculating income-based payments
- Cover unpaid interest so that loan balances don’t grow when a borrower’s payments are below the interest
- Placing greater controls on college costs
If you have student loans, you’re likely eligible for the student loan interest deduction on up to $2,500 in interest per year. Use this IRS tool to see if you qualify.