Everyone these days is talking about the stimulus and how it possibly affected the student loan forgiveness scheme. U.S. Senate is watching a fierce debate where some senators favor the motion while others oppose the whole idea.
Were the loans even included in the stimulus?
It all started when the US Congress passed stimulus packages back in 2020. The stimulus packages were approved to relieve the pressure of pandemics from people's shoulders throughout the country. In March 2020, the Trump administration signed the CARES, which gave it the status of federal law.
But what exactly happened that uproared this discussion in the first place? According to the law, interest payment and other prominent fines were halted on federal student loans. But still, the law wasn't applicable on private student loans. But the December 2020 relief bill promoted the concept of employers paying their employees' student loans.
The American Rescue Plan
The American Rescue Plan is the most recent development on stimulus and its impact on student loan forgiveness. The plan was passed in the form of a bill by the Biden administration. The project was approved back in March 2021.
According to the loan plan, the payment of student loans was further suspended, considering the impact of the pandemic. The program first extended the date of submission to September 30, 2021. But later on, the date was extended to January 31, 2022. The federal student loan interest rate was 0% during this time limit.
What are the latest updates?
According to the latest updates, the student loan forgiveness program is extending its circle. In other words, the plan allows more people to benefit from it. First of all, not many people had the notion of benefiting from the student loan forgiveness program, but now things are changing.
According to the August 2021 stats, a loan discharge was announced for 323,000 borrowers facing permanent disability.
The amount discharged in total reaches the mark of 5.8 billion USD. All these borrowers are identified through the Social Security Administration (SSA) data. There's just one thing the borrower has to do. Submit proof of earning for three years in a row.
Role of US Department of Education
The US Department of Education is already quite active in Student Loan Forgiveness programs and initiatives. The department has already announced that it is extending the program dynamics for more and more people. This means that people with a permanent disability can have their student loans completely paid off by the federal government. But they do need to show proof of earning for three years.
In a more recent announcement, the department has announced that it is expanding the student loan programs. For example, the department covers the Federal Family Education Loan Program (FFELP).
What do the new rules state?
There are as such no new rules applied by the department yet. The eligibility criteria are the same as before. Instead, the SSA-based data offers much more transparency than any previously initiated such programs. All you need to do is apply for the program, and the eligibility criteria will be sorted out automatically.
But there's some interesting new information that you will love. The US Department of Education makes around 1 million student loan borrowers eligible for the program. Even those who have defaulted on the FFEL program will have their defaults removed now.
Will it be tax-free?
This is possibly the most frequently asked question about the stimulus package. Finding out whether the loan repayment program will be loan-free or not depends upon the borrower's repayment plan. For example, an income-driven repayment plan will ensure that you will have to pay significantly less for the loan program.
And you will be surprised to hear that majority of the federal student loan programs are eligible for an income-driven repayment plan. The plan is also immensely supportive for the borrower as it will charge you only depending upon the borrower's income and nothing else.
The Public Service Loan Forgiveness program
Time to talk about the real deal here. Yes, we are talking about the Public Service Loan Forgiveness program (PSLF). The working model of this plan is straightforward. According to the project, the public sector job holders can have their federal-based loans forgiven after 120 months of payment.
To be eligible, there is only one clause. You must be a federal, state, or local government employee. Employees of the tribal government or non-profit organizations are also eligible. Another student loan forgiveness program for teachers offers loan forgiveness up to 17,500 USD in loans.
What’s included in the package?
Time to sum up what is included in the stimulus package so far. The first thing is the extension of the student loan payment deadline up to January 31, 2022. During this time, there will be no interest charged from the borrowers. All the suspended payments will be considered under the loan forgiveness program.
There will be no taxes applied if the student loan is forgiven through the end of 2025. Employers are allowed to pay 5250 USD annually. The contribution, however, will not be included in the employee's taxable income asset. For an unpaid student loan, there will be no collection actions.
Final note
The stimulus is a hot topic these days. If you are a borrower, you might be confused already whether or not you are eligible for the loan forgiveness program. On the other hand, Elizabeth Warren executed a particular order that forgives the student loan borrowers USD 50,000.
On the other hand, Biden is also willing to write out a particular amount off the student loan of each borrower. The amount most probably will be somewhere between 10,000 – 12,000 USD. This amount still is quite considerable depending on the average Student Loan amount of the US public. But still, it's all in the talks for the time being. Hopefully, the future news will be pretty good, and the chances are that more and more students will benefit from it.