How will loans be forgiven? It sounds like most of them will be automatic, but for anyone who isn't, there will be an application available in early October.
Is forgiveness taxable? At the federal level, no, which should be a huge relief to anyone who this program applies to. There are 13 states that will need to address their tax codes for forgiveness to not be taxable, listed here:
Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia and Wisconsin
What if I paid down/paid off my loan below the $10,000 level during deferment? I am enormously proud of my clients who paid their loans down and off even though there was no obligation to do so. For those who paid their loans below the $10,000 mark, extra payments should be returned with no questions. Although I can't see where paid off loans are addressed, I would expect those to get reimbursed too but it might take some time.
What if I refinanced my loans? I can see a number of folks cringing at this one. As of right now, it appears you are out of luck. I confess I was a proponent of refinancing with lower rates.
Wondering out loud, I'm not sure servicers can tell the difference between a pay off and a refinance so keep an eye out for the possibility of getting the $10,000 from a pay off scenario then applying it to a private loan.
What else should I know? Student loan deferrals are officially postponed until 12/31/22 with payments resuming in January. Biden is also working on a program to revamp how federal loan forgiveness programs are addressed on an ongoing basis to include lower income calculations and reducing the forgiveness program time frame from 20 to 10 years.
As always, let me know what questions you have, and investors, hang in there- no amount of student loan euphoria could offset the federal reserve's intention to continue raising rates until inflation is defeated.
Have a great afternoon!
Natalie |