Overview of Student Loan Forgiveness Announcement

By Ann Ramage, CPA, Partner

Overview of Student Loan Forgiveness Announcement

August 2023: This information has been updated based on new information. Read our most recent update on the status of the Student Loan Program.

November 2022

Update:  Student Loan Forgiveness Program on Hold

On Thursday, November 10, 2022, a U.S. District Judge in Fort Worth, Texas ruled that the Student Loan Forgiveness program usurped Congress’ power to make laws. According to Judge Mark Pittman, the Higher Education Relief Opportunities for Students Act of 2003, commonly known as the HEROES Act, did not provide the authorization for the loan forgiveness program. The Biden Administration immediately filed a notice to appeal. The fate of the plan will likely end up in the Supreme Court. Keiter will continue to monitor the status of the program and provide updates.

As your Opportunity Advisors, we are providing an overview of President Biden’s student loan forgiveness provisions, taxpayer eligibility, and resources for more information.

Student Loan Forgiveness Taxpayer Eligibility and Resources

An estimated 45 million people across the US owe approximately $1.6 trillion in student debt according to August 2022 White House figures. President Biden’s August 24, 2022, Student Loan Debt Relief announcement has the potential to provide both short term and long term relief and the opportunity for eligible taxpayers to see a meaningful reduction in their student loan balances. The most impactful provision is a one-time pandemic relief related student loan forgiveness offer to eligible taxpayers. While technical guidance as well as procedures to request the relief are currently being drafted, here’s what we do know as well as some questions that still need to be addressed:

Extension of the pause on federal student loan repayment

The pause on federal student loan repayment is extended to December 31, 2022. This is expected to be the last federal student loan repayment extension. Repayments are expected to resume January 2023.

Goals of the Extension

  • To reduce the defaults/missed payments and provide more time for taxpayers to plan for/transition back to repayment schedule
  • To provide additional relief while the Department of Education develops and finalizes guidance and mechanism to request this one time student loan relief

Student loan forgiveness overview

  • Up to $20,000 of student debt forgiveness is available to an eligible Pell grant recipient who has a loan outstanding with the Department of Education
  • Up to $10,000 of student debt forgiveness is available to a non-Pell grant recipient who has a loan outstanding with the Department of Education
  • Forgiveness is limited to the lesser of the remaining balance outstanding or the $20,000/$10,000 maximum applicable to the taxpayer’s situation
  • Loan Qualifications:
    • Must be held by eligible institution at time of relief request
    • Refinancing of debt originally held by qualifying institution with a private institution will not qualify
    • Loan must have been outstanding by June 30, 2022
    • No graduation requirement exists
  • Eligible Taxpayers:
    • Single taxpayer has annual income of under $125,000
    • Married taxpayers have annual income of under $250,000

Taxability of student loan forgiveness

Relief of indebtedness is not considered taxable income for federal income tax purposes as a result of the American Rescue Plan. For Virginia residents, while not yet formally posted or announced by the Virginia Department of Taxation, it has been reported by the Virginia Mercury that a Virginia Department of Taxation spokesperson has initially provided that student loans forgiven through Biden’s 2022 student loan forgiveness program is not expected to be taxable on the Virginia income tax return. We will continue to monitor for announcements regarding changes or updates on the taxability of student debt forgiveness.

Department of Education’s next steps

  • Development of an application to request debt forgiveness before the end of the pause period which ends December 31, 2022
  • Request updates on next steps/application process
  • Department of Education Press Release

Additional resources

Some additional information on the other student loan relief related proposals announced by President Biden may be found in the resources below, but given the proposed nature are not outlined further in this blog.

We hope you find this information helpful. If you have specific questions regarding the announcement or the student loan forgiveness process, please refer to the linked resources above or contact your financial aid institution. 

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About the Author

Ann Ramage

Ann Ramage, CPA, Partner

Ann has 20 years of experience providing tax planning opportunities and insights to operating entities, investment partnerships, trusts and high wealth individuals and families. Ann is a member of Keiter’s Family, Executive, and Entrepreneur Advisory Services team and works closely with individuals and family offices to address their various tax compliance, consulting and estate planning needs.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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