Student loans

Act soon for the cancellation of public student loans

David GardnerFor the camera

Student loans have been in the headlines with the latest extension of President Biden’s suspension of interest and payments until July 31 due to economic disruptions associated with COVID-19. This means that borrowers have gone more than two years without repaying their loan or having to pay interest on their student loan. Speculation is rife that Biden will extend the vacation again given the challenges of restarting the apparatus around loan servicing and the political pressures surrounding the midterm elections.

While borrowers may be content to hope that the payment and interest holiday never ends, some may be taking steps to help secure student loan forgiveness with a deadline later this year. This program does not apply to all student borrowers. Instead, it is limited to those applying for loan forgiveness through the Civil Service Loan Forgiveness Program.

Under this program, borrowers can apply for forgiveness once they have made student loan payments on time for ten years while working for a qualified employer. Even better, this loan discharge is not considered taxable income. So even if $100,000 of student debt can be wiped off the books, the borrower won’t have to pay tax on that windfall. Those in government employment can use the period between March 2020 and the end of the loan pause to qualify for ten years of payments, as borrowers are considered current during this period.

A surprising number of employers are included in the definition of the public service. Federal, state and local government employees are of course eligible. Also, people who work for most non-profit organizations, including many hospitals, will meet the requirement.

Although the program has been in place for many years, loan forgiveness applicants have historically had very little chance of applying successfully. Less than 3% of applications were accepted, in part due to the complexity of participating in the appropriate loan repayment program and documented barriers faced by student borrowers.

In response to these difficulties, a new temporary program has been put in place that allows borrowers to receive retroactive credit for student loan repayments even if they were not enrolled in one of the good loan repayment plans. . Until October 31, borrowers can go to studentaid.gov/pslf and claim credit for previous payments made while working for a qualified public service employer. You can also receive credit for late and partial payments. If after applying, you have 120 on-time payments, you may qualify for loan forgiveness.

If you still have payments remaining to qualify for the rebate, you must ensure that you are enrolled in an eligible student loan payment program in order to receive credit for future payments. It is important that you choose an “income-oriented repayment plan”. This is a student loan payment option that limits the amount you pay per month based on your income and family situation.

There are also loan forgiveness options for non-direct student loans, including Federal Family Education Loans Program loans, Federal Perkins Loans, or other types of Federal Student Loans, including Parent Loans. MORE. In these cases, it may be a good idea to consolidate your student loans to receive loan forgiveness. It may also be a good idea to consolidate loans if you have more years of repayment with one loan than another to benefit from the ten-year forgiveness period on the entire loan balance.

This is a very complex topic, but I encourage you to educate yourself on your options. Your first stop should be studentaid.gov. Plus, student loan expert Mark Kantrowitz lends his expertise to saveforcollege.com.

David Gardner is a Certified Professional Financial Planner with Mercer Advisors practicing in Boulder County. The opinions expressed by the author are his own and are not intended to serve as specific financial, accounting or tax advice. They reflect the author’s judgment at the date of publication and are subject to change.