By Christina Henry, NWCLC Board Member.
There have been many changes to assist with forgiveness for federal student loans in the last couple of years. The most important changes that anyone with loans, especially if you’re a public service worker or low-income should be aware of are as follows:
- the American Rescue Plan (ARPA), passed by Congress provided for waiver of any taxable event for all student loan forgiveness through December 31, 2025
- Universal Debt Cancellation: Possible $10,000 forgiveness if rulemaking through the Administrative Procedures Act is successful;
- Payment pause per the CARES Act;
- PSLF Waiver Fix – apply to older FFEL loans, other changes;
- IDR Waiver to allow forbearance to count toward forgiveness;
- Rollback of strict new regulations governing Borrower Defense to Repayment program enacted by Sec DeVos;
- ED policies and Executive authority versus Congressional approval
Under the ARPA, any taxable event includes both federal and private student loans. So, if you are eligible for one of the federal loan forgiveness programs and obtain forgiveness by December 31, 2025, any forgiven debt will not be taxed. Similarly, if you can negotiate a student loan debt for less than the amount owed or allegedly owed any forgiven amount will not be taxed. This tax change is significant and anyone who has private student loans with the ability to settle them for less than the amount owed should take advantage of this.
Critical Deadlines and the One-Time Adjustment
An important deadline for all borrowers is December 31, 2023. That is the deadline to consolidate all old loans into the federal program found at www.studentaid.gov. If you have an older loan, that was disbursed before 2010, you need to consolidate them NOW. Under old guidelines, if you changed IDR plans, you could lose months and years paid toward forgiveness programs. However, during the COVID pandemic, the rules changed for a brief period – until December 31, 2023. If you change plans or consolidate with the federal government, you will not suffer any loss of time in forgiveness. Except for any time in default or in school, the time will be counted toward forgiveness. This is called the One-Time Adjustment program and has led to the forgiveness of older loans that have been in repayment for 20 years or more. The counting starts from the first loan in repayment, i.e., undergrad loans, not graduate loan repayment if you have graduate loans. So, if you graduated from undergrad in 1994 or soon thereafter, you are probably one of the lucky few who will receive notice of total forgiveness of your federal loans. You should also note, that if you missed the deadline for the PSLF waiver last year, this One-Time Adjustment does almost the same thing and you can get the benefits of uncounted months in repayment. Lastly, if your loan is not totally forgiven, the One-Time Adjustment program will likely still count more payments toward forgiveness if you had any significant time in forbearance instead of repayment under an IDR plan.