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What You Need to Know About the Student Loan Relief Executive Order Thumbnail

What You Need to Know About the Student Loan Relief Executive Order

College Planning Tax Planning

The Biden Administration made a big announcement on Wednesday with regards to student loans.  This article will not discuss the fairness, validity, or pros/cons of such a move.  It will simply state the facts of the executive order, in case it is helpful for you and your family.

Student Loan Relief Executive Order Summary

  1. Maximum debt forgiveness is $10,000 per borrower
  2. Only eligible if income was below 
    • $125,000 if you filed your tax return Single or Married Filing Single
    • $250,000 if you filed tax return Joint or Head of Household
    • The word “income” is a bit unclear but folks are assuming AGI or Adjusted Gross Income
  3. What years do they reference?  It appears to be 2020 OR 2021.  It has to be pandemic related years, as this is the only way to push it through
  4. It looks like this income threshold is a cliff, meaning that if you make $251,000 you are not eligible for the forgiveness.  If you make $249,000, you are.  A planning opportunity exists here for business owners who have not yet filed 2021 returns.  They could make a retirement plan contribution for the prior year to bring their 2021 AGI in line
  5. Taxation: at the federal level, it appears the forgiveness will be tax-free.  The state level does not always mirror the federal.
  6. What qualifies: in general, federal student loans do, private loans do not.  If you refinanced your loans with a private lender, it appears you are out of luck.  Parent Plus loans ARE eligible.  Relevant income for Parent Plus loans is that of the borrower (parent).  In theory, a parent could have their parent plus loans forgiven and the child their own loans forgiven.  Graduate loans are also eligible.
  7. The current 0% interest rate on Federal student loans, which were set to expire at end of year, have been extended to December 31, 2022.  The Biden Administration says this is the FINAL extension.
  8. Lastly, for folks with student loans on an Income Driven Repayment (IDR), it looks like another option is being made available.  This should be considered if you are already on an IDR plan or considering due to the magnitude of student loans or income change.

Here are the bulletins should you want to dive into it more:

White House briefing: https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/

Department of Education bulletin: https://www.ed.gov/news/press-releases/biden-harris-administration-announces-final-student-loan-pause-extension-through-december-31-and-targeted-debt-cancellation-smooth-transition-repayment