CLEVELAND — With the application open for President Biden’s student loan forgiveness, borrowers are making sure all questions are answered before they file – like, exactly who does and doesn’t qualify and is there any catch?
"The debt is overwhelming, and a lot of people - including myself - feel like we’ll never be able to get out from under it. I owe over 50-thousand dollars in student loans," says Thurman Henry, who filed for student loan forgiveness as soon as the application opened.
Biden’s student loan debt relief will no doubt be a game-changer for many, as folks continue to feel the financial effects of inflation associated with the pandemic.
"It makes it impossible to be able to afford even some basic things, like food or new clothes. To have some of this debt taken off of the top really would make life better," says borrower Jason Caterina, who - because of financial strain - has placed his student loans in forbearance or deferment multiple times since graduating from college 20 years ago.
Federal student loan borrowers who make less than $125,000 a year qualify for at least 10-grand of Biden’s debt forgiveness. Pell Grant recipients qualify for up to 20-grand. But many still have questions about Biden's student loan forgiveness plan. For instance, what if you're still in school?
"You can be a student in school still and still have some of your student loans forgiven, as long as your loans were fully disbursed before July 1st of this year," says Case Western Professor of Banking and Finance Greg Harmon.
Do parents who took out federal loans for their kids also qualify?
"If they’ve done borrowing in addition, to help pay for their children’s student loans, and qualify with the income levels through federal programs like the Parent Plus program, yes," says Harmon.
If you’ve already paid off your student loans, are you eligible for forgiveness too? Harmon says you are. But there’s a catch.
"Only if you finished paying them off some time after March 2020 would you get some of your money back from the Federal government on this," says Harmon - meaning you would have had or will have to pay off your student loans during the “pandemic pause," between March of 2020 and the last day of this year.
One of the biggest questions borrowers seeking student loan forgiveness want answered is - Will they have to pay for forgiveness somewhere down the line in taxes?
"The federal government has already stated that there is no tax associated with the loan forgiveness, so it’s as if the 20,000 dollars or the 10,000 dollars that they give you is tax-free," says Harmon.
There are several states planning to apply state tax to the forgiveness money, including Michigan, Indiana, North Carolina, and Mississippi. Wisconsin, Arkansas and California are also considering taxing student loan forgiveness money.
Student loan forgiveness only applies to federal loans. Back in August, the Education Department said that some private loans may qualify for forgiveness, if borrowers consolidate them into the federal Direct Loan program by the end of 2023. But, just last week, the Department announced that only private loan borrowers who have already applied to consolidate would qualify. That leaves over 3 quarters of a million borrowers shut out of the forgiveness plan.
For information on qualifying or applying for student loan debt forgiveness, go to studentaid.gov.
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