5 Steps To Tax-Free Student Loan Cancellation

Senator Elizabeth Warren (D-MA) (Photo by Scott Olson / Getty Images)

Getty Images

Here are 5 steps to get a tax-free student loan cancellation.

Here’s what you need to know.

Student Loans

The new stimulus bill passed by the Senate on Saturday, which President Joe Biden is expected to sign soon, contains a provision that would make student loan cancellation tax-free. This includes not only private and government student loans, but also FFELP loans. This game-changer would also make any large-scale student loan cancellation tax-free when Congress cancels student loans or the president issues student loans by executive order. In the meantime, you can cancel the student loan by following these 5 steps:

1. Sign up for an income-based repayment plan

Contact your student loan service provider to sign up for an income-based repayment plan. Income-oriented repayment plans are only available for government student loans (not private student loans) and can help you get a lower monthly payment. Why? Income-oriented repayment plans are based on your monthly disposable income, family size and country of residence. If you’re having trouble paying student loans or are unemployed, income-oriented repayment plans can be especially helpful. It is important that the registration does not take place automatically. You need to sign up for an income-based repayment. However, Biden has a plan to modify student loans that would make the income-based repayment sign-up automatic.

2. Verify your income to receive a lower student loan payment

With an income-based amortization plan, it is possible to get a monthly payment on a student loan of as little as $ 0. The main driver of your monthly student loan payment is your income. Contact your student loan service provider to certify your income. If you have already certified your income, you will be asked to certify your income every year. For example, if you lose your job, you can get a lower monthly student loan installment. The payments for the federal student loan are currently suspended until September 30, 2021. Now is a good time to re-certify your income so that starting October 1, 2021, your monthly student loan payment is based on your correct income.

3. Choose the right income-oriented student loan repayment plan

There are four main types of income-oriented repayment plans:

• Income-based repayment (IBR)
• Pay as you earn (PAYE)
• Revised earnings settlement (REPAYE)
• Income-related repayment (ICR)

Choose the best income-oriented repayment plan based on your specific financial situation. Typically, each plan requires a monthly student loan payment based on a percentage of your monthly income that is between 10% and 20%. Use a student loan calculator to compare which income-based repayment will maximize your student loan allocation.

4. Pay the student loan in full and on time

That sounds obvious, but it’s important if you want to get student loan waivers. To receive student loan waiver, you must make full monthly payments on time each month for 20 years (student loan) or 25 years (student loan). If you meet these requirements, your remaining student loan balance will be completely waived. How do you get tax-free student loan issuance? The economic stimulus package makes student loan issuance tax-free for a period of five years: from January 1, 2021 to December 31, 2025. If you register for an income-based repayment today, you will not be tax-free student loan waiver before the tax-exempt provision expires. However, Congress could extend the tax-free student loan waiver past December 31, 2025, either temporarily or permanently. If the Democrats control Congress, expect tax-free student loans beyond December 31, 2025 (though there is no guarantee).

5. Get a tax-free student loan issuance faster

You may be wondering how to get student loan waiver today. Maybe you don’t want to wait 20 or 25 years for your student loans to be waived. If Congress decides to terminate the student loan, or if the President cancels the student loan by order of the executive, you may receive advance notice of the student loan. In addition to the income-related repayment, there is another option for obtaining a tax-free student loan waiver. It’s not coming today, but you don’t have to wait 20 or 25 years either. It’s called Public Service Loan Forgiveness, and it’s a federal program that cancels your federal student loan after 120 monthly student loan payments. You must meet several requirements, including working full-time for a skilled civil service or nonprofit employer and making payments on time each month. After you meet all the requirements, you can get a tax-free student loan waiver. Biden has a plan to simplify government loan waiver and offer up to $ 50,000 waiver on student loan after five years, which could cut the waiting time to cancel the student loan in half.

If you are considering strategies to repay student loans faster, here are some possible student loan repayment options:

Student Loans: Related Literature

17 million receive no stimulus checks – the same goes for the cancellation of the student loan

Termination of the student loan excluded from the new economic stimulus package

Termination of the student loan is less likely if the stimulus checks are cut

Bernie Sanders: Let’s Cancel Student Loans Without Republicans

source https://collegeeducationnewsllc.com/5-steps-to-tax-free-student-loan-cancellation/