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Student Group

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Charles Thomas
Charles Thomas

The Forgiven (2022)

The guidance confirms that, when a taxpayer's loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiveness from income and must include in income the portion of the loan proceeds that were forgiven based upon misrepresentations or omissions. Taxpayers who inappropriately received forgiveness of their PPP loans are encouraged to take steps to come into compliance by, for example, filing amended returns that include forgiven loan proceed amounts in income.

The Forgiven (2022)


Many PPP loan recipients who received loan forgiveness were qualified and used the loan proceeds properly to pay eligible expenses. However, the IRS has discovered that some recipients who received loan forgiveness did not meet one or more eligibility conditions. These recipients received forgiveness of their PPP loan through misrepresentation or omission and either did not qualify to receive a PPP loan or misused the loan proceeds.

If the three conditions above are met, then under the PPP loan program the forgiven portion is excluded from income. If the conditions are not met, then the amount of the loan proceeds that were forgiven but do not meet the conditions must be included in income and any additional income tax must be paid.

On June 30, 2022, AB 194 was enacted which allowed an income exclusion for covered loan amounts forgiven pursuant to the Paycheck Protection Program Extension Act of 2021 (PPPEA)(Public Law 117-6). The PPPEA was enacted on March 30, 2021 and extended the covered period of the PPP from March 31, 2021, through June 30, 2021.

President Biden laid out a sweeping plan in August to cancel up to $20,000 in federal student loan debt per borrower. To get that maximum, individuals must earn less than $125,000 a year, or less than $250,000 a year for couples, and must have received a Pell Grant in college. Non-Pell borrowers who meet those income requirements qualify for $10,000 of forgiveness.

There isn't currently a deadline to apply for forgiveness, but the administration recommends submitting applications before Nov. 15. That way the department has more time to process millions of applications before the student loan payment pause ends on Dec. 31.

Undergraduate loans, graduate loans and Parent PLUS loans managed by the Department of Education are all eligible. Biden's plan only applies to federal student loans, though; private student loans are not eligible for forgiveness, even if they began as federal loans. If you're unsure what type of loans you have, contact your loan servicer.

According to a senior White House official, a borrower's income from either 2020 or 2021 must meet the loan forgiveness income requirements (less than $125,000 a year for an individual, or less than $250,000 a year for couples) in order for that borrower to qualify for loan forgiveness. More information on how to document your income will be available in the coming weeks.

You may have noticed in our coverage we always say borrowers are eligible for "up to" $10,000 or $20,000 of forgiveness. This language comes directly from the Education Department, and it's less confusing than it may sound.

Basically, if you owe $7,000 in student loans and qualify for $10,000 in forgiveness, you'll get all $7,000 erased, but that extra $3,000 won't be going into your pocket. That stays with the federal government.

One thing to keep in mind: If you made loan payments during the pandemic pause, and your loan balance is now below the baseline $10,000 or $20,000 for Pell recipients, you may want to ask for a refund so you can take advantage of the full forgiveness amount. More on that below.

The estimation methods herein largely follow our previous brief on student loan debt forgiveness, along with some updates to accommodate the new details released by the Biden Administration. Our previous brief also provides additional background into existing income-based repayment programs.

Table 1 reports the 10-year budgetary cost estimates for the student loan forgiveness portion of the Biden proposal. The $468.6 billion cost in 2022 corresponds to loans only for students who have separated from eligible post-secondary education and no longer have their debt payments deferred. The $519.1 cost over the 10-year budget window includes students currently enrolled in college with loan deferral status as well as future students during the budget window. As discussed in our previous brief, our loan forgiveness calculations include cost savings to existing income-based repayment programs with partial take-up rates.

This new program will likely target lower income households even more than loan forgiveness noted above. However, assigning the new IDR gains to specific income groups with reasonable accuracy requires the use of confidential data and an associated mandatory external review period. We will revisit this issue in coming weeks.

The Biden Administration announced Aug. 24 a plan to cancel up to $20,000 in federal student loan debt, which would affect many of the nearly 43 million Americans who borrowed to attend college. The plan has since come under several legal challenges, causing the U.S. Department of Education to stop accepting new applications and halt distribution of any forgiveness.

Loan payments are now set to resume 60 days after either the forgiveness program is implemented or the Supreme Court rules on the matter. The new extension, according to a statement from the Education Department, "will alleviate uncertainty for borrowers as the Biden-Harris Administration asks the Supreme Court to review the lower-court orders that are preventing the Department from providing debt relief for tens of millions of Americans."

Who is eligible for forgiveness? What types of debt will be forgiven? How is relief administered? Do I need to sign up or apply?How is income eligibility determined?How does this affect Public Service Loan Forgiveness?What if I continued paying despite the repayment pause during the pandemic and now owe less than $10,000? Can I receive a reimbursement?Will debt relief be considered taxable income?What if I didn't finish my degree? Do I still qualify?What does this mean for borrowers who took out private student loans?What if I'm in default on my loans?Have there been legal challenges to the plan?

The plan recently was changed to no longer include borrowers who have Perkins loans or Federal Family Education Loans held commercially rather than by the Education Department. This could leave more than 4 million borrowers without relief, since they must have applied to consolidate those loans into a federal direct loan before Sept. 29, 2022, to be eligible for forgiveness, according to new guidance posted by the Education Department on The plan originally gave these borrowers until Dec. 31, 2023, to consolidate and apply for the forgiveness.

Borrowers will have the choice to use either their 2021 or 2020 tax return information when applying for loan forgiveness, says Jared Walczak, vice president of state projects at the Tax Foundation, a nonprofit that focuses on tax policy. Even if borrowers have a single income above $125,000 or a household income above $250,000 at the time of the announcement, they can still qualify as long as their income in 2021 or 2020 was under the threshold, Walczak says.

In October 2021, the Biden Administration announced a limited-time waiver that relaxed eligibility requirements for the Public Service Loan Forgiveness program, which had faced criticism and investigations for its high ineligibility rates. Borrowers that worked in certain nonprofit and public service sectors for 10 years or more, even if not consecutively, might be eligible for all of their student debt to be canceled or get credit toward forgiveness.

This, however, is separate from the one-time student loan forgiveness recently announced by the Biden Administration and will have no impact on a borrower's eligibility for either $10,000 or $20,000 in forgiveness, according to the NASFAA.

Relief is capped at the amount of your outstanding debt, according to For example, a student who made payments to bring their balance down to $15,000 but is entitled to $20,000 in forgiveness would only receive $15,000 in relief. The Education Department hasn't indicated that it will reimburse borrowers for payments made during the pandemic pause, Walter says.

While debt forgiveness is ordinarily taxable income, it will not be counted toward federal income taxes as part of the Biden Administration's plan. The American Rescue Plan Act of 2021 allows canceled student loan debt to be federally tax-free through 2025, Walter says. However, in some states, borrowers could potentially have to pay state income tax on the amount of forgiveness they receive.

California does not tax student loan forgiveness if it is part of an income-based repayment plan, but other forms of loan forgiveness are subject to income tax, Walczak says. He says California legislators are planning to amend that policy to include similar provisions for federal student loan forgiveness.

In his 26-page decision, Pittman said that the Heroes Act of 2003, which the president cited in taking the executive action to provide the loan forgiveness, doesn't provide clear authorization by Congress.

The first student loan debt relief lawsuit was filed by the Pacific Legal Foundation, a California-based libertarian group, on behalf of a borrower living in Indiana who argues the plan will cost him more than $1,000 in state taxes on canceled amounts, as Indiana is one of seven states that could potentially tax loan forgiveness as income.

On Oct. 21, a federal appeals court issued an administrative stay that temporarily blocked the administration's loan forgiveness plan, which preceded the Pittman ruling. The Eighth Circuit Court of Appeals is considering the motion for the aforementioned six states.

The current litigation puts into question whether the loan forgiveness plan can be implemented before January 2023, when student loan payments are set to resume after the pandemic-induced pause, or at all. 041b061a72


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