We had a momentous announcement last week from President Biden, and we wanted to sum it up for all of our doctors in a video and short article.
Forbearance
This pause has been extended once again to December 31st, 2022. No interest will accrue. As we’ve mentioned before, the payments you make in this time will still count towards PSLF.
Debt Cancellation
There are two tiers mentioned in this cancellation announcement:
Up to $20,000
For individuals who utilized Pell Grants.
Income threshold is:
Under $125,000 gross annual income for a single filer in either 2020 or 2021.
Under $250,000 gross annual combined household income for joint filers in either 2020 or 2021.
Up to $10,000
For individuals who utilized regular Federal student loans.
Income threshold is:
Under $125,000 gross annual income for a single filer in either 2020 or 2021.
Under $250,000 gross annual combined household income for joint filers in either 2020 or 2021.
Additional note: as of 8/30/22, there are several states that could take a cut of the debt cancellation for tax purposes. Unfortunately, a discharge of indebtedness counts as income–and is taxable. This is the list of states that can currently tax this:
AK, MA, MS, NC, MN, and WI.
This is not to say it won’t change. “In the coming weeks and months, we are likely to see additional states issue guidance on the treatment of discharged student loan debt, and perhaps even adopt legislative fixes, causing this list to dwindle further.” - Jared Walczak in his recent article on taxfoundations.org.
Poverty Limits
These are also being changed. If you’re in an income driven plan, your payments will be less. Meaning, if you’re in PSLF you will be optimizing this plan.
Income-Driven Plan
Instead of a 10% calculation this will be 5%. This will only be on undergraduate loans.
What’s next?
Some of the cancellation should happen automatically for ~8 million individuals, and the remainder of the ~43 million eligible will have to apply. Our recommendation is to keep an eye on your mail, email (make sure your contact info on your loan servicer websites are up-to-date), and sign up at the Department of Education subscription page to be notified when the cancellation process has officially opened.
The Department of Education will also cover unpaid interest for those in an income-driven plan or pursuing PSLF.
Don’t forget to apply for PSLF waivers by October 31st, 2022!
If you have any additional questions, please reach out to us for more information.
CONTACT US
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Josh Lantz, CRPC®, CIO and Financial Advisor at MD Financial works diligently with all our teams to coordinate the services we provide for our clients. He wants to make sure all our clients have sound, fiscally responsible, financial plans and feel more comfortable about their future. He can be reached at Josh@mdfinancialadvisors.com.