Next steps after student debt forgiveness
As the government shutdown comes to a close, student loan borrowers are receiving notices regarding debt forgiveness.
In October, the Trump administration decided to issue forgiveness for some borrowers on certain student loan plans such as the Income Contingent Repayment plan and Pay as You Earn plan, according to a news article from CNBC. With over $1.6 trillion in combined outstanding student debt across the United States, experts cited in the article advised borrowers who receive debt relief to take several steps to reevaluate their financial goals and consider the potential uses of their discretionary income.
They noted that student debt cancellation may not come with federal tax liabilities through 2025. The benefit could extend up to several months into the new year if the notice is received in 2025 and the debt formally cleared in 2026. However, because the cleared debt will be considered taxable income, borrowers who receive the notice in 2026 will be responsible for the federal tax bill. If unable to pay the tax liability at once, borrowers can request to spread out the payments. They can also request to be placed in forbearance until their debt cancellation is cleared.
Further, the experts urged borrowers to keep records proving their debt relief eligibility and the debt clearance itself. Those who continued making repayments after being notified of debt relief eligibility may qualify for refunds from the U.S. Department of Education.
Once borrowers see their student debt forgiven, the experts suggested using the extra cash to build an emergency fund and revisit financial goals such as saving for a major life event, a home or retirement.
Read more: CNBC
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