Ideally, federal loan forgiveness is treated as taxable income. It is no longer news that the mass loan forgiveness plan was rejected by the Supreme Court. Will borrowers pay tax on other active loan forgiveness programs?

Is Student Loan Forgiveness A Taxable Income?

Student loan forgiveness is generally regarded as taxable income. Under the law, lenders subtract the cost of the forgiven loan from their taxable income while borrowers add it to their annual taxable income. Borrowers treat the forgiven loan as an additional income and pay the tax on the forgiven amount. 

Due to the aftereffects of COVID-19, the Biden administration and Congress continue to look for ways to relieve borrowers of their loan burden. According to the new American Rescue Act of 2021, some student loan forgiveness programs are not treated as taxable income. 

Lawmakers have recently proposed excluding all student loan forgiveness from taxable income. We are still waiting for its activation. But for now, the following loan forgiveness tax exemptions are actively ongoing until 2025. 

TPD Tax Exemption 

TPD loan forgiveness became tax-free after the Tax Cuts and Jobs Act was passed in 2017. The tax exemption will be active till 2025.

TPD loan forgiveness is for American citizens who cannot maintain gainful employment due to permanent medical conditions. Before the Tax Cuts and Jobs Act was passed in 2017, TPD loan forgiveness was treated as taxable income. 

IDR Plan Tax Exemption 

The IDR plan forgives borrowers of their loans after paying consistently for 15-20 years. Before the COVID-19 pandemic, student loans forgiven under the IDR plan were treated as taxable income. 

The new 2021 American Rescue Plan Act exempted borrowers under the IDR payment plan from paying tax on their forgiven loan. The exception is active until 2025. 

PSLF Tax Exemption 

Borrowers under the Public Service Loan Forgiveness programs are forgiven their loan after 120 consistent payments and working in a public organisation for ten years. PSLF loan forgiveness is usually treated as taxable income, just like the IDR plan.

However, ARPA also exempted public sector and non-profit organisation employees under the PSLF program from paying tax on their forgiven loans.

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What student loan companies are federal? Third-party companies usually handle federal student loans. This article will also explain how to find your loan servicer. You are automatically assigned a loan servicer when your federal loan application is approved. 

Federal Student Loan

Federal student loans are handled by third-party companies. They stand as middlemen between the federal government and the loan borrowers. Your loan repayment plan is handled by your assigned loan servicer.  

Federal student loan works like every other loan application. The only significant difference with federal student loans is that you can access additional benefits. Federal student loans can also be paid within a period of 10 -20 years. You can also extend the payment length to suit your income.

Federal student loan borrowers can opt for the income–driven payment plan. Your family size and discretionary income determine how your monthly loan payment is calculated. You may pay little or nothing monthly if your income is below the federal poverty guideline for your family size.  

List Of Student Loan Companies That Are Federal

Your loan service company handles everything that pertains to your loan, including payment, deferment, and student loan forgiveness. You can also contact your loan servicer when you need assistance, information or guidance on anything pertaining to your student loan. 

• Default Resolution Group 
• Edfiniacial 
• Aidvantage 
• Nelnet 
• OSLA
• ECSI
• MOHELA 

How To Find Your Student Loan Servicer

Student loan payment was paused in 2020 due to the COVID-19 pandemic. The initial student loan forgiveness plan would have saved a lot of borrowers from resuming payment during this period. The Supreme Court has ruled against student loan forgiveness, and borrowers have no choice but to resume payment.

 Your previous loan servicer before the covid-19 might not be your new loan servicer. You can check your new loan servicer by following the guidelines below. 

Visit your student loan account dashboard at studentaid.gov. Search for the “My Loan Servicers” section on the page. You will see the contact info and how to reach your new loan servicers on the page. 

Another option is for you to call the Federal Student Aid Information Center. The official hotline for FSAIC is 1-800-433-3243. You can then request your new loan servicer’s information from the call center representative.  

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Credit Scores

Your credit scores determine whether subsequent lenders will borrow your money or not. A good credit score boosts your chances of getting loans from private or public organisations. This is because your credit scores show how reliable you are in paying back your loan. 

Positive Impact Of Student Loans on Your Credit Scores

Your student loan can impact your credit scores positively, provided that you pay your loan as when due. When you do not miss any of your loan payments. Your loan payment history is one of the criteria for calculating your credit score.

A positive payment history from your student loan will boost your overall credit scores. According to FICO Score, your loan payment history makes up 35% of your credit score. 

Federal student loans under the IDR plan spread the payment of your loan for up to 25 years. A long credit history can positively impact your credit score. According to the FICO Score, long credit history makes up to 15% of your credit score. 

Credit mix is another criterion used for calculating your credit score. Having a good payment history on your student loan plus a credit card will give you a good credit score. Managing two types of credit impacts your Credit Score more than managing two of the same kinds of credit. 

Negative Impact Of Student Loan On your Credit Scores 

While a good student loan payment history can boost your credit score, poor performance can also harm it. Having your missed payment reported to the National Credit Bureau can leave a dent in your credit reports for seven years. 

A poor credit score prevents you from getting a loan from private loan companies. A private loan company will dig deep into your credit history before approving your loan application. Each credit inquiry reduces your credit score.

When you apply for a loan from a private organisation, they make inquiries about your credit history. Each deep inquiry about your credit history may lower your credit score by 5%. This may even make it more challenging to get your loan approved. 

How is Credit Scores Calculated?

Your credit score is calculated by assigning a certain percentage to five major criteria, which include; 

• Payment history 
• Credit mix 
• Amount owed
• New credit 
• Length of credit history. 

According to FICO Scores, 35% is attributed to your payment history, 30% to the amount you owe, and 10% to your credit mix. Another 10% is attributed to your new credit and 15% to your length of credit history. 

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The student loan forgiveness plan was taken to the Supreme Court. Many borrowers hoped for a favorable outcome. When will the Supreme Court rule on student loan forgiveness?

The President Joe Biden Student Loan Forgiveness Plan

The student loan forgiveness plan by the Biden administration was an effort to relieve borrowers of the after-effects of the COVID-19 pandemic. The loan forgiveness targets low and middle-income borrowers.

The Biden Administration loan forgiveness plan was worth $10,000 for federal borrowers. Pell Grant recipients who earned less than $125,000 yearly would have been forgiven $20,000 worth of loans. The loan forgiveness plan was proposed in 2022, and 26 million borrowers already applied for the program. 

What Was the Supreme Court Rule On Student Loan Forgiveness? 

After multiple decisions, the Supreme Court has ruled against the student loan forgiveness plan proposed by the Biden Administration.  

The decision was on the basis that Biden did not have the authority to cancel over $400 billion worth of loan debt under the 2003 Act of Higher Education Relief Opportunities for Students. 

When Will Repayment Start For Student Loan? 

Due to the Supreme Court ruling, borrowers resumed loan payments as of September this year. Interest started incurring on student loans in October. 

There are other initiatives put in place by the Biden administration to relieve borrowers of the burden of the sudden resumption of the loan payment. 

12-month on-ramp payment allows borrowers to pay any amount they can afford without facing the consequences of late or missed payment. The on-ramp payment will last 12 months, and it has started since September. 

Borrowers that have entered default before loan payment was paused in 2020 can start afresh. You can contact your loan servicer on how to register for a fresh start for default borrowers. 

Possible Alternative For Student Loan Forgiveness 

Your loan cannot be forgiven based on the 2022 mass loan forgiveness plan proposed by the Biden administration. The Supreme Court ruled against the plan in June this year. You can opt for other student loan forgiveness options.

• Teacher loan forgiveness 
• Public Service Loan forgiveness 
• Income-driven repayment plan 

Note: Terms and requirements apply to all these student loan forgiveness programs. You will need to work in certain federal organizations and pay your loans for certain years. 

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But other initiatives have been put in place to cancel your student loan,  provided you are eligible. Do I qualify for student loan forgiveness?

Federal Student Loan Forgiveness Programs  

Loan forgiveness means your debt is cancelled or partially paid by another entity. Since loan forgiveness is a federal government initiative, it means the federal gov paid for your loan.

Student Loan Forgiveness Programs

There are diverse forgiveness programs for student loans for eligible borrowers. Getting your student loan forgiven often requires that you work in a public sector or a non-profit organisation. You must also have a certain year of consistently paying your student loan. 

• Public Service Loan Forgiveness Program (PSLF)

Employees in public sectors or non-profit organizations are eligible for the  Public Service Loan Forgiveness program. For PSLF, you need 120 consistent payments within ten years.

You can implement the PSLF Help Tool to track your qualification for your loan forgiveness. The only kind of federal loan that can be forgiven through the PSLF program is a Federal Direct Loan. Always recertify your IDR plan yearly to tighten your eligibility for loan forgiveness after the 10-year window. 

• Teachers Loan Forgiveness Program 

Working in a low-income school or any education service agency for five years makes you eligible for the Teacher Loan Forgiveness program. Fill and submit your Teacher Loan Forgiveness Application to your loan servicer for processing. 

• Income-Driven Repayment 

The Income-driven repayment plan is otherwise known as IDR. Your family size and discretionary income are used to calculate your monthly repayment amount. You may not pay anything monthly if your income is below the Federal Poverty Level for your family size. 

The IDR payment plan extends between 15-20 years. Borrowers who paid their loans consistently for 15 – 20 years are automatically eligible for student loan forgiveness. This means that your remaining balance after these years will be cancelled.

Who Is Qualified For Student Loan Forgiveness Program?

Public sector employees and low-income school teachers are qualified for federal loan forgiveness programs. Working in a non-profit organisation also makes you eligible for a federal loan forgiveness program. 

Other compulsory criteria include timely payment of your loan, avoidance of default and yearly rectification of your IDR plan. 

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The Joe Biden administration proposed wiping out the debt of borrowers once and for all. You may be eager to know when exactly the plan will kick off. When will student loan forgiveness start? Who is eligible for forgiveness? How will you know if your student loan has been forgiven? 

Update On Student Loan Forgiveness

The student loan forgiveness program has been a hot topic since President Joe Biden announced the plan in August 2022. Middle-income and low-income borrowers are the core target of the program. The president initially planned to forgive $10,000 worth of non-Pell Grant and $20,000 of Pell Grant student loans. 

The student loan forgiveness plan has undergone much backlash, including a lawsuit since it was proposed. Early July this year, the Supreme Court ruled against the program. The paused student loan payment resumed in September. 

Who Is Eligible For Student Loan Forgiveness? 

After the one-time student loan cancellation plan was rejected by the Supreme Court, the Joe Biden administration opted for other initiatives to ease borrowers. 

The new initiative is for borrowers on the IDR payment plan. You must have been paying your student loan consistently for the past 15-20 years to be eligible for forgiveness.

 President Joe Biden announced in August to forgive 800,000 borrowers who have been denied forgiveness for their debt due to administrative failure. 

Ideally, Borrowers on the IDR payment plan are forgiven their debt after paying consistently for 15-20 years. But that has not been the case for many borrowers. This is because the loan administrators have failed to track some borrowers’ payments for all these years.

When Will Student Loan Forgiveness Start? 

The student loan forgiveness program for borrowers on the IDR payments plan has started since August this year. Borrowers who have been paying through the IDR payment plans are notified through mail of their loan forgiveness. 

If your loan has been forgiven, you are expected to receive a congratulatory mail from your loan servicers stating that “Your student loan has been forgiven.”According to ABC News, the email has started since August and other borrowers will be notified in the coming weeks. 

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The plan was proposed after about three years of suspension of student loan payments by borrowers due to the COVID-19 pandemic. How will student loan forgiveness be paid for? Or, who gets to shoulder the over $400 worth of loans if borrowers aren’t paying? 

What Is Student Loan Forgiveness? 

Student loan forgiveness is an initiative where a borrower loan is cancelled or paid for by another entity. The federal student loan forgiveness was proposed by the President Joe Biden administration. The program was initiated to cancel the debt of many student loans that were suspended during the COVID-19 pandemic in 2020. 

But, early July this year, the Supreme Court ruled over the Joe Biden student loan forgiveness plan. Student loan borrowers are to resume payment from September while interest will start accruing on the loan from October. 

Who Will Pay For The Cancelled Student Loan?

Assuming the student loan wasn’t cancelled as proposed by the Joe Biden administration, the federal government will pay the loan. Paying for student loans that is worth over $400 billion would have increased the federal deficit. 

In simple terms, deficit at the federal level measures how much a country makes minus its expenditures.  In fiscal year 2021, the United States had a deficit of $2.8 trillion. This was due to the pandemic emergency relief spending. 

Generally, when a country is unable to pay her debt, it may cause financial panic, especially in the financial system. The 2021 federal deficit is equivalent to 13% of the US gross domestic product (GDP). This is the 2nd largest federal deficit since the end of World War 2.

What Happens When Student Loan Forgiveness Plan Is Activated?

Ideally, the US deficit for the past five decades is an average of 3% of the GDP. But, the percentage shot up to 13% in 2021 due to the Covid-19 emergency spending. An upward increase in deficit puts a country at risk of default – where she is unable to pay her debt. 

 According to the analyst, the federal government has two options to reduce the deficit. It is either to raise taxes or decrease spending. If either of the options is implemented, the general public will end up paying for the cancelled loan one way or another. 

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From early 2020 up till mid-2023, federal student loan borrowers were allowed to skip loan payments. Now that the pandemic is totally over, when will student loans resume? 

When Was Student Loan Repayment Paused? 

The student loan payment was paused in March 2020 under the President Donald Trump administration. The loan payment was stopped due to the COVID-19 pandemic, which put a standstill on the economy and many businesses. 

The paused federal loan repayment was extended several times under the Donald Trump administration and now Joe Biden. The payment is set to resume soon after the Supreme Court ruled against its further extension. 

Student loan borrowers who have stopped payment for about three years ago and those who graduated during the pandemic period are to resume payment. 

When Do Student Loans Repayment Resume?

The Supreme Court ruled against the extension of the student loan payment and student loan forgiveness plan of the President Joe Biden administration in July this year.  

The student loan payment was set to resume in September, while borrowers are expected to resume payment in October. Interest will start accruing on your paused student loan as of October this year. 

Student Loan Payment Resumed. What Next?

 Resuming payment all of a sudden for your student loan may pose a big challenge, but here is another good news. President Joe Biden introduced three initiatives to ease the burden of student loan borrowers who have stopped payment for over three years.

SAVE Payment Plan

The new SAVE plan is added to the previous IDR plans. The SAVE plan based your student loan monthly payment on the percentage of your discretionary income. Your monthly loan payment under the IDR plan is 10% of the discretionary income. 

Your discretionary income is the difference between your total income and 225% of the federal poverty guideline. This means that you will minus your annual total income from the federal poverty guideline for your size of household to get your discretionary income.

12-Month On-Ramp Payment

This initiative gives you the liberty to adjust to resume paying your student loan. You are allowed to pay any amount you have without facing the consequences of late payment or default payment.

The On-ramp payment will last for one year during which your missed or partial payment activities won’t be reported to the credit bureaus.

Fresh Start For Borrowers In Default

Borrowers whose payment has entered default before loan payment was paused in 2020 are allowed to start afresh. This means that you are forgiven for facing the normal consequences that are associated with your loan payment entering default. The Fresh Start program is proposed to last for one year. 

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There are other initiatives put in place to ease borrowers of their debt burden. This article will explain other loan forgiveness options that you can take advantage of. You will know how to apply for student loan forgiveness through other means apart from the ruled-out relief plan. 

What Is Student Loan Forgiveness?

Student loan forgiveness means some or all your debt was canceled. This means another entity paid the loan and you don’t have to refund the person or entity. Several federal programs can cancel or discharge your student loan repayment. 

Who Can Apply For Student Loan Forgiveness?

You have to do your part for your student loan to be forgiven. Most student loan forgiveness programs require that you are an employee at a federal institution or non-profit organization.

• Income-Driven Repayment Plan (IDR) 
• Nurse Corps 
• Public Service Loan Forgiveness (PSLF)
• Teachers Loan Forgiveness 

 How To Apply For Student Loan Forgiveness 

The kind of student loan forgiveness program you want to opt in for will determine your mode of application. The application processing will vary across the different programs. Here is how you can apply for the following programs. 

• Teacher Loan Forgiveness 

The loan forgiveness program of Teacher does require you work full-time for five years in any education service agency or low-income school. After five consecutive years of teaching, you can submit your Teacher Loan Forgiveness Application to your student loan servicer. 

• Income-Driven Repayment Plan (IDR) 

You can apply for IDR loan forgiveness after paying your student loan for 20-25 years. You can qualify for your remaining loan forgiven provided that you`ve been paying back your loan as of when due for all these years. 

• Nurse Corps 

You will need to create an account with the Health Resources and Services Administration customer service portal to submit your application. Your student loan forgiveness application will be processed online through the HRSA portal. 

• Public Service Loan Forgiveness (PSLF)

This loan forgiveness program requires you to submit a Temporary Expanded PSLF certification and application to your loan servicer using the PSLF Help Tools. 

The PSLF loan forgiveness program also requires that you work full-time in a non-profit organization or federal agency for ten years. You must have made 120 repayments of your student loan in 10 years to qualify for the loan forgiveness program. 

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Credible Loan

Credible is like an online marketplace where individuals can source personal loans from different lenders. Using Credible to find lenders is simple and easy. You just need to specify the kind of loan you need and provide some personal information about yourself. 

Types Of Credible Loans

Figure out the kind of loan you need before searching for a loan on Credible. You can search for three major kinds of loans on the Credible website. These loan types are listed below. 

• Student Loan Refinance 
• Student Loan
• Personal loan 

How To Apply For Credible Loan 

The Credible website is a marketplace where you search for loans that can suit your needs. You can apply for a loan at Credible by following the below steps. 

• Credible Loan Form 

You will have to fill a quick form to apply for a loan. Credible will do a quick background check on your credit score without affecting it. The website will then update you with a list of lenders or loan companies that fit your needs.

• Compare Lenders 

You will be updated with the list of lenders or loan companies that fit into your credit score and needs. filter your options based on the interest rate, loan amount, repayment terms and other fees associated with getting the loan. 

• Pick Your Best Option

After filtering and comparing your options, pick the lender or loan company that best suits your needs. 

• Complete Your Application 

Your chosen lender or loan company will provide you with a full loan application form. Fill and submit the form coupled with the required documents. 

• Get Your Fund

The loan company will check and approve your loan application. The process usually takes between 1-7 business days. 

How Long Does It Take To Get Personal Loan From Credible 

From the moment of getting your loan application approved by your chosen loan company to the period you get your fund may be within 2-7 business days. 

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