Here Are the Facts About the Hot-Button Issue
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Today, we’re going to talk about a contentious subject that’s a hot-button issue for many voters in 2024. And we’re going to keep it apolitical, because no matter which side of the aisle you’re on, opinions about student loan forgiveness are highly charged.
Many believe student loans are a racket, especially given their personal experiences making repayments for decades only to see the principal barely budge. In some instances, borrowers have repaid more than they initially borrowed and still see a balance as high as the original amount.
Others are offended by forgiveness programs claiming they’re a handout, whether that’s directed at student loan borrowers … or politicians who speak ill of loan forgiveness while taking advantage of the government forgiving their own loans.
We know. We said apolitical.
But Marjorie Taylor Greene is a reprehensible human being, and that’s something all Americans should agree on regardless of which party they affiliate with. Just consider the following claims she’s made:
- California’s wildfires were caused by secret Jewish space lasers.
- School shootings, including the one in Parkland, Florida, were staged.
- And late Supreme Court Justice Ruth Bader Ginsburg was replaced with a body double long before her death.
Not only is Greene an insufferable gasbag, she’s also a hypocrite who’s benefited from the exact loan forgiveness she’s vocally criticized.
Unsurprising for a loathsome, QAnon fangirl whose net worth, according to Forbes, is $56 million. Meanwhile, student loan forgiveness isn’t available to those making over $125,000/year.
But we digress. Apolitical. Today, we’re going to discuss:
- How bad the issue’s become for millions of Americans.
- Who’s eligible for loan forgiveness.
- And whether forgiven amounts are considered taxable income.
It’s Bad … Really Bad
Americans now owe $1.77 trillion in student loan debt. Compare that to $1.59 trillion in auto loan debt, $1.12 trillion in credit card debt and $220 billion in medical debt … and you can start to see the gravity of the situation.
The main driver behind this massive debt load is college tuition, which has skyrocketed 153% over the past 40 years and has been exacerbated by stagnated wages (when adjusted for inflation).
For context, when Baby Boomers attended college, they needed 306 hours of minimum wage to afford four years of public university tuition. Millennials needed 4,459 hours.
So while tuition increased 153%, the number of minimum wage hours worked in order to afford tuition increased 1,357%.
The result: 43.2 million Americans owe an average of $39,981. That’s why headlines like this …
And this …
And this …
… are now commonplace.
Eligibility
Enter student loan forgiveness, which can be ambiguous. These plans entail partial or full cancellation of debt. And while the following programs don’t encompass all student loan forgiveness plans, this touches on many of them, specifically for those holding federal student loans.
PSLF Program
Borrowers can apply through the Public Service Loan Forgiveness Program, which is eligible to employees of governments and nonprofit organizations. In order to qualify for the PSLF Program, you must:
- Have made the equivalent of 120 qualifying monthly payments.
- Worked full-time for an eligible employer while making payments.
This program can also include nurses, doctors and other medical professionals that meet the nonprofit criterion.
Teacher Loan Forgiveness
Eligible to qualified educators, this plan provides debt relief of up to $17,500 if you have taught full-time for five consecutive academic years in a low-income school or educational service agency.
Disability
If you are living with a disability, you may qualify for the Total and Permanent Disability (TPD) discharge.
If you qualify, you won’t have to repay Federal Direct loans, Federal Family Education Loan Program loans or Federal Perkins Loans.
IDR Plan
If you’ve been in repayment for 20–25 years, you may be eligible for the Income-Driven Repayment plan.
An IDR plan bases your monthly repayment on your income and family size. If you repay with an IDR plan, any remaining balance will be forgiven after you make a certain number of payments over 20–25 years.
School Closure Discharge
If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for discharge of your federal student loan. To be eligible, you must meet the following conditions:
- You were enrolled when the school closed.
- Or you were on an approved leave of absence when the school closed.
- And the school closed within 180 days after you withdrew.
Tax Treatment
According to the IRS, student loan forgiveness for the PSLF Program is not considered taxable income at the federal level. However, at the state level, that can vary.
For most other types of student loan forgiveness, under current law, the tax code does treat forgiven debt as taxable income.
For example, if a borrower has a salary of $45,000, a student loan balance of $50,000 and receives $25,000 in forgiveness, that forgiven amount is added to their salary for an annual taxable income of $70,000.
When borrowers have debt canceled, they’ll receive Form 1099 to claim that amount as income for that tax year.
In short, there’s no such thing as a free lunch. Even for Marjorie Taylor Greene.
We’ll be back next week with another investment opportunity that’s related to this week’s issue … and pays a hefty dividend.