Contents
Introduction
Student loan forgiveness has been a hot topic lately. But the truth is, not everyone is eligible for this benefit. And even if you are eligible, it can be hard to know exactly when your loans will be forgiven. In some cases, it may take years before you receive any benefits from your student debt. So in this post, we’ll cover everything you need to know about how student loan forgiveness works and why it’s important to plan ahead for this financial milestone.
The application deadline is December 31, 2022.
- The application deadline is December 31, 2022.
- If you don’t apply by the deadline, you won’t be eligible for forgiveness.
- If you miss the deadline and later find out that you qualify, you can still apply. However, it will take longer to process your request because it has been retroactively extended to 2022 instead of 2019 as originally planned.
- You can apply for forgiveness through the IRS
If your loan is not forgiven, you may be able to get a tax break on any interest that remains on your loan after the forgiveness period.
If your loan is not forgiven, you may be able to get a tax break on any interest that remains on your loans after the forgiveness period. If so, you can reduce your taxable income by deducting the cost of interest payments or spreading out the amount over several years.
The IRS considers student loan forgiveness as taxable income for borrowers who receive it through an employer-sponsored program or an income-driven repayment plan. The agency’s general rule is that if you have taken out a federal student loan and received a discharge before 2023, then any remaining outstanding balance will be considered taxable income in whatever year it was discharged (meaning paid off).
If you’re entitled to a partial discharge under one of those programs but only partially receive it in one year due to insufficient funds at IRS’s disposal, then the agency will count only what was actually disbursed as part of that particular year’s taxable income—not taking into account any back payments from previous years stuck in limbo due to lack of resources on hand (again: see above).
The higher your income and the longer you have until you reach retirement age, the more taxes you will owe on your forgiven loans.
The higher your income and the longer you have until you reach retirement age, the more taxes you will owe on your forgiven loans.
A person who is 65 years old or older when they receive a student loan forgiveness plan won’t be taxed on their forgiven amount because they are already retired and no longer working full time. However, if they’re younger than 65 but still over 59 1/2 years old, then they may still get hit with taxation depending on how much money is forgiven.
If you qualify for student loan debt forgiveness, it’s important to know when it will happen so that you can plan financially for it.
While it’s unlikely that you would be able to pay off your entire loan, it may be possible to reduce what you owe by as much as $30,000 if the following criteria are met:
- You’ve borrowed money from the federal government
- You’ve made 120 monthly payments on time
- Your loans are still in good standing (no delinquency or default) and were issued by a federal agency or guaranteed by the government
If any of these conditions aren’t met, there isn’t anything you can do about it. Student loan forgiveness isn’t always granted for any reason and may only happen once per person per type of debt (for example, Income-Based Repayment only applies to federal student loans). If all three requirements above have been met and your application is denied because one of them has not been met fully or at all then there’s no recourse available through the Federal Student Aid department other than appealing directly to Congress
Conclusion
Hopefully, you now have a better understanding of how student loan forgiveness will work. If you qualify for this program, then it’s important to know when it will happen so that you can plan financially for it. And if your loans are not forgiven by December 31, 2022, then don’t worry too much because there are other options available to help reduce the debt burden on students who have high levels of debt but little income.