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Will I be taxed for my student loan forgiveness?

A calculator and tax books (Nexstar, file)

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https://digital-stage.newsnationnow.com/

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(NEXSTAR) – Millions of federal student loan borrowers will soon receive thousands in debt relief under a new plan revealed by the Biden administration on Wednesday.

While many aspects about the plan remain unclear, there are a few questions we can answer. One of those is whether forgiveness will be considered taxable income.

It’s a reasonable concern – the maximum relief available of $10,000 or $20,000 (depending on if you received a Pell Grant while in college) could be enough to move some borrowers into a different tax bracket if it’s considered taxable income.

Thankfully, according to the White House, any relief you receive won’t be treated as taxable income for federal income tax purposes.

This is due to the American Rescue Plan.

When Congress passed the American Rescue Plan shortly after President Biden took office in 2021, it eliminated taxes on loan forgiveness through 2025.

Here are three other things you should know about Biden’s plan to forgive millions of dollars in student loan debt.

Payment pause to end

If your entire loan balance won’t be erased – which is likely for some 23 million borrowers – President Biden has extended the payment pause through the end of the year.

But, come January 1, 2023, interest will begin accruing again, and regular payments will resume. He has indicated the pause will not be extended again.

Made payments? You can get a refund

If you’ve voluntarily made payments since March 2020, when payments were paused, you can request a refund for those payments, according to the Federal Office of Student Aid. 

Contact your loan servicer to request a refund.

When will you see relief?

When and how student loan forgiveness will be distributed hasn’t yet been made clear.

According to the U.S. Department of Education, nearly 8 million borrowers may qualify for relief automatically based on the income data the department already has. If the Education Department doesn’t have your income data, or you’re unsure if the agency has it, there isn’t much to do right now.

Instead, you’ll need to wait for the Biden administration to launch an application process, which will be available “in the coming weeks.” The application will be available before the student loan repayment pause ends on December 31.

You can register to be notified when the application is available through the Department of Education by filling out this form.

The Associated Press contributed to this report.

U.S.

Copyright 2024 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed

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