According to the U.S Department of Education, roughly 43 million Americans have federal student loan debt. Many borrowers owe, on average, about $28,950 in federal loans. On August 24, 2022, the White House recently announced the Biden Administration's plan to provide financial relief to numerous Americans who hold federal loans and qualify for the program.
Who Qualifies For Relief?
There are many Floridians who qualify for this program. The announcement made clear that as long as your individual income did not exceed $125,000 per year (or $250,000 per year if you are married and file taxes jointly), that you would be eligible for $10,000 of loan forgiveness on your federal loans.
Will This Impact My Tax Filing Status?
However, many Americans worry about the tax implications of this loan forgiveness. After all, federal law under 26 U.S.C. §61(a)(11) has traditionally required that any discharge of indebtedness (forgiven debt) be reported to the Internal revenue Service as if it were taxable income. Under normal circumstances, if the federal government forgave $10,000 or $20,000 in loan debt, a 1099-C tax form would be issued, and the borrower would be required to add that amount to their taxable income for that year, potentially owing more money when submitting their federal tax return. That said, this is not traditional loan forgiveness. In essence, any student loan forgiveness which occurs between December 31, 2020 and January 1, 2026, will not have to be included as taxable income. So be sure to make the most of your potential savings and apply for forgiveness if you meet the qualifications!
What If I Paid My Loan Debt Before the Announcement?
There are some Americans who took advantage of the moratorium on interest accruing on their federal student loan accounts during the pandemic and actually paid off their entire loan balance. If you find yourself in a situation where you paid off your entire debt and have regret that you cannot take advantage of the recent forgiveness announcement, you may still have options.
Part of the American Rescue Plan Act of 2021 included provisions which paused mandatory monthly payments on student loan accounts starting on March 13, 2020. Additionally, the Act allowed borrowers to receive a refund for any student loan payments they made after the payment pause began. If you paid off your loan sometime after March 2020, you may contact your federal loan servicer and request a refund. Whatever amount is refunded will be added back to your outstanding loan balance, however, the moratorium on interest continues until December 31, 2022. Therefore, if you request a refund of a payment you made after March 2020, and then apply for the recently announced loan forgiveness, you should still be able to take advantage of the program, and get back your hard-earned money to use on other things.
If you do receive a loan refund and wish to use those funds settle other outstanding debts, feel free to contact the Holland Law Group for a no-cost consultation at (941)-744-5450. Our attorneys are available statewide, from Miami to Jacksonville, Tampa to Orlando, to assist you in all manner of debt defense and debt settlement matters, so call today!