Parent PLUS loan borrowers and current college students will also be eligible for relief using the same $125k/$225k income guidelines. Dependent college students will use their parents’ income. Loans taken out after June 30, 2022, are not eligible for a reduction.
Most people will need to complete a simple application form to receive forgiveness, but roughly 8 million current loan holders whose income data is already on file with the US Department of Education won’t need to apply. The application form and process are still in development but are promised to be ready by the time loan payments resume in January 2023.
The administration is also proposing significant changes to income-driven repayment, which calculate monthly payments at 10% to as much as 20% of discretionary income. The proposal would limit monthly payments to 5% of discretionary income, cutting most monthly payments in half. These changes will need to be posted in the Federal Register and be open to public comment for 30 days. The changes could be in place when payments resume.
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...states they will lose tax income from this loan forgiveness?
What? How the devil do you lose tax income from student debt? My imagination may be somewhat limited, but, these are federal loans. The states income tax from banks servicing the loans? Is that the loss of tax income? Like how much loss of tax income, because, banks are really the issue, are they?
My understanding is that the federal government forgiveness plan will impact federal collections and it touches up to trillions. But, the states have no losses. These are federally insured educational monies and were not a burden to the states when they were incurred. The federal loans are granted nationally by a FAFSA which is uniform in every state. If anything the FAFSA has brought billions to state universities and 2 year colleges across this country, so where are these states collecting taxes on the loans? It sounds corrupt to me.
By Danielle Douglas-Gabriel and Jeff Stein
The White House estimates roughly 43 million federal student loan borrowers (click here) are eligible for forgiveness, and about 20 million could have their debt completely wiped out, according to a senior administration official who briefed reporters on Aug. 24. The policy will deliver the single largest discharge of education debt on record.
“This is going to change the lives of a lot of people,” said Mark Huelsman, director of policy and advocacy director of the Hope Center, a higher education think tank. “When we’re talking about full cancellation for 20 million people, this is unprecedented.”
Still, the announcement disappointed some activists who had fought for a more generous policy. And it angered other Democrats and conservatives who say it is fiscally irresponsible and unfair to people who never borrowed, as well as those who have already repaid their student loans....
The majority of states were trying to decide if loan forgiveness was actually income subjected to state income tax. It doesn't make sense six states are complaining they are losing income through taxes when they have every right to tax it as income.
...After some confusion (click here) regarding whether or not states would count the money saved by student loan forgiveness as taxable income, student loan borrowers in a few more states can also relish in the fact that they’ll no longer have this hanging over their heads. With the exception of three states — Mississippi, North Carolina and Indiana — that have decided to levy state taxes on federal student loan forgiveness, and several others that have yet to announce their final decision, in most states, additional state taxes will not be required for those whose federal student loans have been forgiven....
Typically, when you have debt discharged, the IRS treats it as taxable income. Since you didn’t pay the debt you owed but kept the money that would normally have been sent to a debtor, it is seen as income, which makes it taxable.
With student loan forgiveness, taxes work differently. In March 2021, President Joe Biden signed the American Rescue Plan into law, which included a clause regarding student loan forgiveness saying that any federal student loans that were discharged between 2021 and 2025 would not be considered taxable income — in terms of federal taxes.
That said, as Eric Bronnenkant, certified financial planner, certified public accountant and head of tax at Betterment, tells Select, residents of several states may still be on the hook for state taxes if their state determines the money saved from student loan forgiveness to be taxable income.
It all comes down to the concept of conformity — whether or not a state chooses to conform to federal tax regulations or go its own way thanks to statutes that are already in place — and whether or not non-conforming states have time to update those statutes to conform with the new legislation.
″[37 states] choose to have conformity with the federal tax system, have conformity with specific federal legislation or create their own specific exceptions and exclusions,” Bronnenkant said. “There are 13 states where the debt forgiveness may be considered taxable income.”
According to Bronnenkant, these states can adjust this for their respective residents through “legislative changes or administrative decisions by state tax authorities.”...
There is complete separation of federal and state tax structures unless the state decides it will follow the federal tax system which does not consider loan forgiveness taxable income.
So what are these six states complaining about? These are federal loans and only federal loans. The federal government has control over these loans. They don't have any room to complain and their tax structure is still within States Rights to decide if loan forgiveness is income. The complaint makes no sense.
