After coming to power in Jan 2021, President Joe Biden announced the cancellation of $1 Billion student loans. Seventy-two thousand students qualified for their student loan cancellation. The move only applies to borrowers whose claims have been approved under the Borrower Defense to Repayment Act. Students are now wondering if they qualify for the cancellation under the same act. In this article, we will discuss that in detail.
Who Qualifies for the loan cancellation?
The following criteria should be met for students to qualify for the loan cancellation:
You are one of 72,000 student loan borrowers; per the borrower to defense act;
Your college or university misled or defrauded you, or your school closed permanently;
You applied for student loan cancellation under borrower defense to student loan repayment forgiveness;
You proved to the US Department of Education that your school misled or defrauded you or that your school closed permanently;
You suffered financial harm; and
You already got some student loan cancellations, but not all your student loans were canceled.
How to get one’s student loan canceled
If you are not part of the 72,000 student loan borrowers, but you have faced a similar experience with your college or university, you may be eligible to get your federal student loans canceled under the Borrower Defense to Repayment Act for student loan repayment forgiveness. Below we discuss how:
Complete the borrower defense to repayment application;
The student needs to prove monetary harm. Borrowing a student loan to attend the program in itself is insufficient to prove monetary harm. The US Department of Education will compare earnings of prior graduates from your academic program to the earnings of graduates of comparable programs to decide on monetary harm.
Providing all supporting documentation.
Sign the certification.
Eligibility for student loan cancellation
Below are some examples that could get you a student loan cancellation under the Borrower Defense to Repayment Act:
Your school mislead you to enroll;
Your school mislead you to continue to enroll;
Your school mislead you about admissions selectivity;
Your school mislead you about the school’s rankings;
Your school mislead you about transfer credit; or
Your school misleads you about job placement or potential earnings outcomes.
Non-eligibility for student loan cancellation
Below are some of the examples that could lead to one not getting one student loans canceled under the Borrower Defense To Repayment Act:
Disliked the school or program;
Unhappy with your academic performance or the grades received;
Unable to secure campus housing; or
Faculty members in your program departed the school.
Going through the above, If you realize that you do not qualify for the student loan cancellation, there are certainly other ways to qualify for student loan forgiveness. For example, you can get your student loan canceled through an income-driven repayment plan or public service loan forgiveness. Both these programs offer tax-free student loan cancellation. Public service loan forgiveness already included tax-free student loan cancellation. At the same time, the new stimulus package, the American Rescue Plan of 2021, makes student loan forgiveness through income-driven repayment tax-free through December 31, 2025.
Normally, the cancellation of debt is treated like income to the borrower. It is as if someone gave the borrower money to pay off the debt. The borrower received an IRS Form 1099-C to report the canceled debt as income. The canceled debt is subject to income taxes, just like any other income.
Certain type of student loan forgiveness is tax-free. This would include:
Public Service Loan Forgiveness;
Teacher Loan Forgiveness;
Loan forgiveness programs for nurses, doctors, and veterinarians;
Loan forgiveness programs for public interest law;
Death and disability discharges;
Closed school discharges;
False certification discharges (e.g., identify theft); or
Unpaid refund discharges.
So will your student loan get canceled?
If your student loan has not been canceled yet under the Borrower Defense To Repayment Act, your student loan can still get canceled if there is wide-scale student loan cancellation. President Biden wants Congress to cancel $10,000 of student loans immediately, while some in Congress want President Biden to cancel up to $50,000 of student loans by executive order. But these discussions are still kind of on the floor of the Congress, and discussions are on. So, in reality, it is unclear if your student loan will be canceled. It is not to scare the students but give them more transparency as to what to expect if your student loan is not canceled. Congress may cancel student loans, but currently, Congress is more focused on pressuring President Biden on student loan cancellation rather than passing standalone legislation. In turn, President Biden has proposed three ways to cancel student loans, and Congress could work on that to pass other student loan forgiveness. Until that happens, however, it’s unclear if or when student loan cancellation will become law. So, in the mean-time, make sure you have a student loans game plan. Start with these three options, all of which have no fees:
What is the way forward?
The past year might have been the worst of our lives, but we cannot let one year decide the future of our education and our existence. We have to leave the past year behind and move ahead and look forward to the future. Online Masters Colleges (OMC) is one such platform that encourages you to take hold of yourself and invest in education for a brighter future. According to the Economic Value Of College Majors, a 2015 study by Georgetown University, college graduates with a bachelor’s degree earn an average annual salary of $61,000 throughout their career, while those with a graduate degree earn $78,000 annually. Hence a master’s degree is always desirable and has a hefty increase in returns on your investment. To help students make the right choices about their master’s degrees, OMC has created the best online master’s program rankings, most affordable online masters programs, along with prep guides for GRE, GMAT. And in the times that we are in, deciding the right way to finance your education is of paramount importance, leading to a significant return on your investment. Hence, here is a link to help you finance your master’s with the best financial aid guide.
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