By: Reyna Gobel MBA, MJ
Yay! The application is now available to speed up the student loan forgiveness for up to $20,000 of federal student loans. The application isn’t necessary for getting the forgiveness. It just makes it happen earlier.
Here’s what else you need to now.
You Could Accidentally Opt Out.
You may have gotten an email with these words: “If you would like to opt out of debt relief for any reason, including because you are concerned about a potential state tax liability, contact your loan servicer no later than November 14 and tell them that you are not interested in receiving one-time student debt relief. Don’t know who your loan servicer is? Log in to StudentAid.gov, find “My Aid,” and select “View loan servicer details.” You also can call us at 1-800-4-FED-AID and we will connect you with your servicer. If you have multiple servicers, you just have to tell one of them that you don’t want debt relief.”
Be careful not to hit this button! It will cost you up to $20,000!
Why Would Anyone Opt Out?
One of the reasons listed is incase you have to pay taxes on federal student loan forgiveness. If you have this thought in your head, delete it. It’s not certain whether the universal forgiveness will be taxed AND even if it is, you can set up a payment plan that is still way cheaper than keeping up to $20,000 in student loan debt. For instance, the taxes IF TAXED on $20,000 could be anywhere from $2,000 to $7,000, depending on your other taxable income amounts. There isn’t an amount of interest the IRS could charge that would equal more than that.
The other reason is if you just don’t want to take the money for some reason. It’s admirable to not want others taxed for your forgiveness, but you pay taxes, too. Make a small donation to charity or even a college scholarship fund to feel better.
How Much Cash Do You Get?
if you never received a Pell Grant, you’re eligible for up to $10,000. If you received a Pell Grant, it’s up to $20,000.
Why Fill Out the Application if the Money is Automatic?
If you have more than $20,000 in debt, you don’t want interest charges to accrue after January 1st on the money that will get forgiven. Applying can help speed up the process.
Will The Amount Forgiven Get Taxed?
Who knows. There could easily be a vote in congress to prevent taxes. OR there may also be a payment plan instituted with 0 percent interest. Bottomline: take the money, apply now, and don’t. opt. out!