Although President Biden's campaign promise to cancel up to $10,000 ($20,000 for Pell recipients) in Federal student loan debt was challenged by Republicans and defeated, there is still some good news on the student loan front. Further, it looks like some borrowers may still hear good news in the coming months thanks to actions via the temporary IDR Account Adjustment. The program retroactively adjusted the number of payment credit years that had not been properly credited to bring more borrowers into relief status for having made 20 or 25 years of payments as required. Even though this action corrected a wrong, Republicans are challenging the IDR Account Adjustment and trying to prevent borrowers from receiving the relief they are qualified for and were originally promised under their loan terms.
Up to 804,000 borrowers using the income-driven repayment (IDR) plan never received proper crediting for their years of payments (either 20 or 25 years) and should see their balances reduced to zero by the end of August (just prior to the restart of payments). The Biden administration asked the Department of Education to review those accounts and as a result, some $39 billion in loan balances will be forgiven. If you have not received notification in this first round, there is still hope. The Department of Education will review accounts again in September and in November to see who further qualifies by the end of 2023. As a bit of a cherry on top, usually forgiven money is taxable. However, under the American Rescue Plan Act of 2021 the amount forgiven is not taxable at the Federal level. In California, thanks to Governor Newsom signing Personal Income Tax law AB 111 with immediate effect, the relief is not taxable at the state level for Californians.
There is also hope for new borrowers. The Student Loan Elimination Act proposes cutting student loan interest to 0% for 43 million loan holders. It also proposes capping any future student loan interest at 4%. The bill has yet to pass but keep an eye on this news.
For those with loans that were on pause, and have not been forgiven, your loans once again start accruing interest in September and your payments will restart in October. Make sure if you still have a balance you are ready to resume that payment. If you no longer have payments and are enjoying some free cash flow, let's connect and decide what to do with that money. As an independent CERTIFIED FINANCIAL PLANNER™, I can help you decide what to do with your newfound money, or review the best debt approach. Contact me and let’s get started. #talktometuesday #financialplan #letsmakeaplan #CFPPro #todolist #moneydolist #studentloan #loan #IDR #saving #investing #money