First, thanks for the link. I’ll check out that thread.
I think it’s possible to discuss the contingencies of the effects of a lawsuit, without this thread devolving into debates about appropriateness/justifications/dissatisfaction/grievances of the policy. For instance, it is important to know if an amount forgiven today might possibly be reinstated in 2025 - that would allow those affected to properly plan for any possible change. However, that doesn’t mean members need to debate political reasons why the lawsuits are being brought. The why’s are all political ideology claptrap. I just need to know the facts, not the feelings.
I think any political discussion belongs in the Politics thread. That’s a self-selected forum for people who want to go back and forth about politics. Even better, it’s been said there is already a thread in the Politics forum for people to engage in no-holds-barred discussions about Biden’s Student Debt Forgiveness policy. No need for the rest of us to have to endure the ceaseless tit-for-tat spats that always result from discussions about politics.
We really can’t start giving advice or make plans on something in dispute. It’s not a matter of politics, it’s a legitimate matter of basic legality. To be honest, it’s doubtful the courts are going to uphold this.
So from a tweet by Secretary Miguel Cardona of the Department of Education
Borrowers can expect the application to be available by early October.
Once completed, borrowers can expect relief within 4-6 weeks if approved.
If you fill out the application before Nov. 15, you will receive relief before payments resume
in January.
So should those who qualify stop making payments if they have been doing so? Or like my youngest, who just graduated and hasn’t started paying on them yet, and she definitely qualifies for this, should she hold off starting payments?
If this goes to court, and that can drag on long past the restart of payments in January, would any payments being made now be added back to the loan amounts to be forgiven?
Why would she start making payments during this period since interest isn’t accruing? If she owes more than the $10k/$20k, and she wants to be able to make a dent in that ‘more’, have her save the payments and make a lump sum payment before the interest starts accruing in Jan.
the answer is Yes, should could pay and then ask for any amount paid be refunded to her account to be forgiven, but why do that? You know it will be a hassle to back off the payments and then take the forgiveness. I’d not depend on that process to be quick or easy. Just wait.
Preliminarily, it appears that 13 states have the potential to tax discharged student loan debt, though the final count could be significantly smaller if states make legislative changes or administratively determine that the debt forgiveness can be excluded, or if conformity dates are updated retroactively.
SoFi and others are private lenders and they are not part of the forgiveness program.
I guess it is possible for those who consolidated a federal loan after March 13, 2020 to ask for their payment back, reinstate the loan, and then have that forgiven but not sure if that request would have to come from the private lender because the private lender paid the federal loan off. Pretty sure the federal loan servicer is not going to issue a $10k check to the student/parent so that the $10k is still owed, but now is owed to SoFi. Defeats the purpose of the loan forgiveness.
"Why would she start making payments during this period since interest isn’t accruing? If she owes more than the $10k/$20k, and she wants to be able to make a dent in that ‘more’, have her save the payments and make a lump sum payment before the interest starts accruing in Jan. "
Good point, didn’t even cross my mind! Will have all 3 set monthly payments aside and if it doesn’t happen, and I don’t think it will, they can just make the one large payment to start.
While I personally believe that a “discussion” could be had about the financial and legal implications of the Student Loan Forgiveness without a “political edge”, I will bow out of the discussions on this thread out of respect for you, @EconPop.
Last night on the news they did a piece on the scams that have already started about the ExO. Scammers are calling and telling people they can skip to the head of the line if they pay the scammers a fee, or that time is running out and they need to provide info right now.
One of the reporters happened to get such a call and tried to call back but I think the number showed as a newsroom, so no answer.
The feds can’t call you without your permission. The servicers can, but much more likely they’ll send a letter or email. Warn your students to beware. I’ve told my kids to only accept calls from their servicer and to watch for emails.
Since my sons with loans live in one of these states, I have a question. How can you tax debt forgiveness? They’re not suddenly going to have that additional $. They just won’t be making payments from their income for it over the next xxx years.
When I make extra mortgage payments to reduce the overall interest I’m not taxed on that saving. Am I not understanding something?
[sorry this went as a reply to you, I’m just asking in general]
Because they’re receiving that $ amount as a benefit; that benefit is considered income. This type of loan forgiveness is usually taxed at the federal level as well; the only reason it isn’t this time is because of a provision included in the Covid relief bill. When you pay an extra mortgage payment, you’re using income that has already been taxed.
When you pay your mortgage principal down, that is what reduces the overall interest.
The loan forgiveness is as if someone gave them a magic $10k that can only reduce their loan principal (or interest that has been capitalized into principal), so that magic $10k is seen as a taxable gift.
The ongoing “interest benefit”, should it pass legal challenges, may or may not be seen as a taxable gift. I’m unclear on it.
But, if, say, you had a mortgage you couldn’t pay, and the mortgage company did a “write-off” which meant they stopped chasing you for money you didn’t have, that would be seen as a taxable gift, and it was, in fact, a problem back in 2008 for folks that had gotten in over their heads during the housing bubble back then.
Ok. I understand what you’re saying. Since my kids who borrowed are still in school I’m more looking at it that they don’t really get a magic $10,000 right now, even though they’re being taxed on it now (assuming). They don’t currently have any income and this isn’t going to appear in their bank account. But once they start earning they can save, or spend on other things, the money they might otherwise have paid out to loans. So they are being taxed ahead of getting the actual money.
My son told me on Saturday that he was going on a date using “the money Joe Biden is giving me.” I started explaining that he wasn’t actually getting the $ just the loan forgiveness but he stopped me to say he was only kidding and he understood how it worked. Can’t wait until I tell him about having to pay a tax on it though.
Lots of things are taxed that you don’t actually get the cash in your pocket. My daughter had to pay tax on her scholarships that paid room and board. That money had gone directly to her school, just like most student loans go to pay tuition and R&B, never hitting the student’s pocket. No different than if you underwithhold on any salary you get, you have to come up with the cash to pay the IRS. If you have income from bartering, you have to pay taxes even if you got no cash.
With the tax structure the way it is now, if your child has no income, then he should have enough of a standard deduction (about $13k) to cover any taxes owed (but there won’t be any federal taxes owed because the covid act said any student loan forgiven before 2025 is not taxable income). Prior to that, PSLF was tax free forgiveness but other forgiveness was taxed, so people having large amounts forgiven in one year were hit with a large tax liability. It is not spread over the life of the loan.
Of course, if you don’t want the tax liability, don’t apply for the forgiveness under this or any other program.
Any debt forgiveness is not a ‘gift’ so gift tax would never apply. Gift tax is paid by the giver, not the recipient (Grandparent’s estate pays the tax on a large gift to grandchildren) and the bank is certainly not paying gift tax when it issues a 1099 for debt forgiveness. That forgiveness is taxed as income to the debtor. Where the debtor comes up with the money to pay the IRS is of no concern to the bank.
Good point, didn’t even cross my mind! Will have all 3 set monthly payments aside and if it doesn’t happen, and I don’t think it will, they can just make the one large payment to start.