Arledge & Associates Q&A A look at student loan forgiveness plan

On Aug. 24, 2022, President Biden announced a student debt relief plan that includes loan forgiveness of up to $20,000 on undergraduate and graduate loans taken out before June 30, 2022. Understanding if you qualify and how to apply will help you take advantage of this program.

On Aug. 24, 2022, President Biden announced a student debt relief plan that includes loan forgiveness of up to $20,000 on undergraduate and graduate loans taken out before June 30, 2022. Understanding if you qualify and how to apply will help you take advantage of this program.

Do I qualify for student loan forgiveness?
To be eligible, your annual income for tax year 2020 or 2021 must be below $125,000 for an individual filing as single or married filing separately, and $250,000 for married couples filing a joint return or an individual filing as head of household. Your income requirements are based on your adjusted gross income (AGI), which tends to be lower than your total income. Your AGI can be found on line 11 of the IRS Form 1040.

What type of loans qualify and how much?
Most all federal student loans qualify for forgiveness. This includes subsidized and unsubsidized loans, as well as graduate and parent PLUS loans. It is important to note that private student loans, such as Sallie Mae, are not eligible for relief. Additionally, qualifying loans are still eligible for forgiveness even if you did not finish college. If you received the Pell Grant in college (even if only for one year) and meet the income threshold previously mentioned, you may be eligible for debt relief up to $20,000. If you did not receive the Pell Grant in college but still meet the income threshold, you are eligible for debt relief of up to $10,000. It should be noted that the "up to” qualification means that the amount of your debt relief is limited to the amount of your outstanding debt.

When will this debt relief be issued?
The U.S. Department of Education released a simple application to register for student loan debt relief (www.studentaid.gov). However, in November 2022, a federal appeals court ruled to bar the plan from moving forward after Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina brought the case to the court. As a result, the application for loan debt relief is closed at this time. However, the U.S. Department of Education is seeking to overturn these orders and move forward with the debt relief plan.

Will I be taxed on this debt relief?
Generally, cancelation or relief of debt would be considered taxable income. However, as a response to the financial effects of the COVID-19 pandemic, the American Rescue Plan Act of 2021 allowed forgiveness of student loan debt between 2021 and 2025 to be excluded from federal taxable income. As of Dec. 6, 2022, the state of Oklahoma has not addressed the issue, but typically follows federal guidelines for similar matters.

What other information should I know?
This student loan debt relief is a one-time cancellation plan, meaning if you have already paid off your loans, you can not receive a refund on those payments. Current college students with qualifying loans are also eligible for debt relief.

Sarah Heath is a tax associate at Arledge, an Edmond-based public accounting firm. Arledge is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.

This article contains general information only and does not constitute tax advice or any other professional services. Before making any decisions or taking any action that might affect your income taxes, you should consult a professional tax advisor. This article is not intended for and cannot be used to avoid future penalties that may be imposed by the Internal Revenue Service.