On August 24 The White House announced President Joe Biden’s Student loan forgiveness plan. Millions of student loan borrowers will be eligible for $10,000 in loan forgiveness or even up to $20,000 if they received Pell Grants. To qualify, borrowers need to make under $125,000 per year, if married under $250,000 per year.
Undergraduate loans, Graduate Loans, and Parent PLUS loans managed by the Department of education are eligible. The debt Forgiveness program only falls in line with federal loans and not privet loans even if they began as federal loans.
The loan forgiveness would eliminate the student debt for 16 million borrowers, according to the Center for American Progress. Not only on the loan forgiveness plan, but Biden is also acting on extending the student loans to the end of the year. Forbes recently said Biden’s administration will also soon be releasing details on a new income-driven repayment plan that will cut payments for undergraduate federal student loan borrowers by 50% or more than existing plans.
The application according to The White House “will be available no later than when the pause on federal student loan repayments terminates at the end of the year.” The Federal Student Aid website states, the forms will able available to be filled out online by the first week of October and will have until December 31. Upon completion of the application, it is expected that some form of relief will be given within the first 4 to 6 weeks.
Loan forgiveness is not taxable at the federal level but at the state level, things tend to get more complicated. Most states abide by what happens at the federal level but for some states that’s not the case. 13 states could treat this lone forgiveness as a taxable income and those are Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia West Virginia, and Wisconsin.
In states that chose to act on loan forgiveness as a taxable income, borrowers could pay anywhere from $300 to over $1,000 in state taxes and the numbers could double for Pell Grant recipients. In Addition, some state tax codes may already provide other exemptions that could protect their residents from unexpected taxes.