What You Need to Know About Student Loan Forgiveness and Payment Pause Extension

Student Loan Payments Paused through 12/31/2022 and Loan Forgiveness

August 24, 2022

Finally, we know how to budget through the end of the year!

Just 7 days before student loan repayment was set to start, the Biden Administration announced today that they extended the payment pause through the end of 2022. That is great news! Now we are free to make financial decisions through the end of the year.

The Biden Administration also announced that loan forgiveness of up to $20,000 is available to eligible borrowers if their individual income is less than $125,000 or $250,000 for households.

Do You Need to Apply for Forgiveness or Forbearance?

The official announcement says that the extended pause will occur automatically. Additionally, it provides the following guidance on forgiveness:

What do I need to do in order to receive loan forgiveness?

• Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to the U.S. Department of Education.

• If the U.S. Department of Education doesn’t have your income data – or if you don’t know if the U.S. Department of Education has your income data, the Administration will launch a simple application in the coming weeks.

• The application will be available before the pause on federal student loan repayments ends on December 31st.

• If you would like to be notified by the U.S. Department of Education when the application is open, please sign up at the Department of Education subscription page.

Will I Be Taxed On Loan Forgiveness? 

Great news! It appears that you will NOT be taxed at the federal level¹. According to Fortune Magazine: “The COVID-19 relief package, which became law in 2021, designates federal student loan forgiveness as tax-free through the end of 2025.” A gray area exists with state income taxes and there is a chance that some states will count loan forgiveness as income².

In the meantime, learn more by reading the following helpful articles:

• • Student Loan Debt Relief Plan Announcement from the Biden Administration

  • Fortune Magazine: What $10,000 in Student Loan Forgiveness Means for Your Tax Bill

  • Why Continuing to Make Student Loan Payments During the Covid Pause Is Smart

  • Avoiding Scams from Student Loan Debt Relief Companies

  • Making Principal Payments on Student Loans

  • Fox News: Florida couple paid off $190K in student loan debt in 27 months: ‘Get a budget’

 

^{1.H.R.1319 – American Rescue Plan Act of 2022 (Sec. 9675) This section modifies the tax treatment of income attributable to the forgiveness of certain student loan indebtedness incurred between 2021 and 2026. It excludes from student gross income, for income tax purposes, income from the discharge of student loans for postsecondary education expenses, private education loans, and loans from certain tax-exempt educational organizations.}

^{2. Once state-by-state guidance is clarified, Champion Empowerment will post an update.}