You have probably heard about the government’s plan to forgive federal student loans. The amount forgiven will be $10,000 and up to $20,000 (if the student qualified for a PELL Grant).

Let’s assume a student has $13,400 in federal student loans. If this student did not qualify for a PELL grant then the federal government will forgive $10,000 leaving a remaining balance of $3,400.

Now if this same student qualified for the PELL Grant, then the federal government would forgive the entire amount. The student would not get the full $20,000 but would get $13,400.

It the words “up to” that count in this equation.  

Here is where I am concerned.

According to the Department of Education’s website it says the following:

What do I need to do in order to receive loan forgiveness?

• Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to the U.S. Department of Education.
• If the U.S. Department of Education doesn't have your income data, the Administration will launch a simple application which will be available by early October.
• Once a borrower completes the application, they can expect relief within 4-6 weeks.

This last line has me a little concerned “can expect relief within 4-6 weeks”. My concern is that these students may get a check for $10,000 plus or minus, cash it and not use it to pay off the student loans. Or will the government pay the servicing companies directly?

If you or your student had a federal student loan, be on the lookout for an announcement from the federal government. If the government sends checks, the check will be made out in the name of the student. Let your student know that this money is not to put a down payment on a car or anything else. It is ONLY to be used to pay off or pay down the federal student loan.

Some states are taxing the student loan forgiveness as income. $10,000 could mean $500 in state taxes. Arizona is not one of those states.

As always, when I hear anything related to college admission, student loans or college in general, I’ll let you know.

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Uncategorized by J.D Wyczalek