The pause on Federal STudent Loan Programs has been extended until the end of 2022 to give the Department of Education time to get the Student Loan Debt Forgiveness Program in place.
As a recap, individuals with federal student loans who meet certain income thresholds will qualify for $10,000 in debt cancellation and if you have a Pell grant, you may be eligible for debt cancellation up to $20,000. Eligibility will be based on youradjusted gross income from 2020 or 2021 but not 2022.
The great new is that NO FEDERAL TAX will be due on any of this debt that gets forgiven!
Usually debt that is forgiven is taxable, for example credit card debt. However a temporary rule was created for this student loan forgiveness program that will cover 2021 to 2025.
Some States will follow the Federal guidelines but some will not. States that appear to be on track to apply tax to your student loans forgiven are : Arkansas, California, Indiana, Minnesota, Mississippi, South Carolina and Wisconsin.
If you are eligible for student loan debt forgiveness, please consult with your tax advisor about how your State will treat this forgiveness and if it is in fact going to be taxable, set aside enough cash to cover the tax due. Else you will be giving up one debt only to land with another!
Reach out to me anytime with questions or concerns.