How is income calculated for student loan forgiveness?
In case you were wondering, yes, there are income limits for student loan forgiveness. There is a reason for that. Imposing income limits on student loan forgiveness ensures that debt forgiveness is focused on those who need it most. The amnesty program is designed so that only individuals and spouses who earn less than certain thresholds are eligible for exemption. This loan forgiveness applies only to federal student loans. Personal student loans are not eligible for forgiveness.
What is the income limit for student loan forgiveness?
Income limits for student loan forgiveness differ for single and married borrowers.
Individual borrowers earning less than $125,000 per year are eligible to cancel a loan of up to $10,000.
Married borrowers who file jointly are eligible for debt forgiveness of up to $10,000 if their combined earnings are less than $150,000 per year.
Borrowers who meet the Student Loan Forgiveness threshold and also have Pell Grants are eligible for up to $20,000 in loan forgiveness.
Income limits for student loan forgiveness are not based on a sliding scale. The federal government has set limits for single borrowers and married borrowers. It doesn't matter if your income is just below this limit or much less. As long as your income is below the specified limit, you will receive the full exemption amount.
How is income calculated for the purpose of student loan forgiveness?
There are two things to know when calculating the income threshold for student loan forgiveness.
First, the cutoff will depend on your annual income earned in 2020 or 2021. These were the years during which borrowers were most likely to experience a decline in income. If your income was below certain thresholds during 2020 or 2021, you are eligible to apply for debt forgiveness.
Second, income eligibility is determined based on adjusted gross income (AGI). AGI is basically the total of all taxable income items minus certain expenses that are listed in Part II of Schedule I on your tax return. Taxable items include your salary if you are employed and net business income if you operate your own business.
How do you calculate your adjusted gross income:
Include all of your earnings including salary, side earnings, and interest on bank accounts and other assets.
From this total, subtract the items on Part II of Schedule I of Form 1040. Deductions may include contributions to health savings accounts, teacher expenses, and individual deductible retirement accounts.
This will give you your adjusted gross income for the years 2020 and 2021.
If your AGI is below the income limit for student loan forgiveness, you are eligible to apply for loan cancellation.
For many individuals, gross income and adjusted gross income will be nearly identical. In some cases, it will be the same. For married couples, there can be a huge difference between the two.
What do you do next if you qualify for a waiver?
You are eligible for a waiver if you meet two basic requirements. The first requirement is that you have federal student loans. The second is that you earn less than $125,000 per year for singles or $250,000 for married borrowers. If you meet both criteria, there are a few things you need to do to ensure that your loan is not foreclosed.
Start by logging into your FSA account and making sure your contact details are up to date. Verify your phone number, email address, and postal address. This will ensure that you get the latest notifications and updates from your loan service about forgiveness.
At this time, the student loan subsidy program was temporarily suspended by the court. While the issue is resolved, you can sign up for updates so you will know when the software is available again. If you have already submitted a waiver application, the Department of Education will maintain it for you. Once the order is raised, they will process it.
What to do if you do not qualify for a waiver
If you do not qualify for forgiveness, you should begin to put your finances in order and prepare to start making payments. Loan repayments were initially set to resume on December 30, 2022, but the moratorium has been extended to June 30, 2023. This means that payments will resume on July 1, 2023. Don't wait until the last minute to see how you'll get it done. Payments Use the next few months to organize your finances and create a payment plan.
Sign in to your FSA account to review your federal student loans. Make a list of all your debts with interest rates, outstanding balances, and payment dates for each.
Calculate the total monthly loan payments for all your loans. Don't forget your student loans. If you have any that stand out, add them to the list. Will you be able to afford these payments each month from July 1, 2023, until they are paid in full?
Consider your options if you think you won't be able to make those payments. Two of the best options out there for making payments affordable are income-based payment plans and refinancing. Take the time to understand how each option works and the pros and cons of each. By doing your homework today, you'll be better equipped to make an informed decision about how to proceed when the time comes.