Student debt relief online application site now open; prepare for beta test glitches and possible state taxes
Saturday, October 15, 2022
The Department of Education is now accepting online applications for full or partial discharge of student loans up to $20,000. It's a soft, beta launch, so be prepared to encounter some glitches if you're in a hurry to be done with your college debt.
Technically, you'll be a test subject for the Education Department. The webpage notes:
We're accepting applications to help us refine our processes ahead of the official form launch. If you submit an application, it will be processed when the form officially launches, and you won't need to resubmit.
Completing the application takes about 5 minutes, and you don’t need to log in or provide any documents.
As for the glitches, the website also says the application "will be available on and off" during the process refinement period. "If you try and it's not available, try again later or wait until the application is available to all borrowers," advises the Federal Student Aid site.
And if you don't get in during this test phase, don't worry. "There's no advantage to applying before the full launch," says the website. No advantage unless you're a type A, obsessive individual. Hey, no judging here, just information.
Auto relief for some: Nearly 8 million borrowers will automatically have their debt forgiven without applying because the government already has their income data. But if the Education Department doesn't have all your student debt details, then this application process is for you.
It's those anxious, eager, incognito, and owing students, former students, and their families who are the reason for this weekend's Saturday Shout Outs to items on student debt relief.
First, of course, is the previously mentioned and quoted Education Department's Federal Financial Aid website on One-time Federal Student Loan Debt Relief.
Next is the Washington Post story Student loan forgiveness applications open in Education Dept. beta test.
Saturday Shout Out number 3 goes to the CNN piece Student loan forgiveness applications now open through beta mode website, Biden administration says.
And then there are those student debtors who are still stuck paying off their loans. The Biden Administration announced a change in the types of loans that will be eligible, knocking out many in the Federal Family Education Loan (FFEL) program. Today's final Saturday Shout Out goes to the New York Times article The Student Loan Borrowers Who Keep Missing Out on Relief, which explains the FFEL program and what happened.
Potential state tax concern: While the student load relief is a boon for millions, some might find there's still a tax cost.
In most cases where debt is canceled or forgiven, that amount is deemed cancelation of debt income, or CODI, and it is taxable.
That's not the case at the federal level for this round of student debt forgiveness. But it could be an issue at the state tax level.
That's why I'm also noting — OK, sending a shameless self-shout-out to — my earlier post on Welcome federal student debt relief could create some state tax issues.
Well, that's enough homework for this Saturday. If you're eligible for student loan relief, good for you. I hope the process isn't too much of a hassle.
And if you do happen to owe some state tax on the amount, at least that's a one-time assessment. And it's a lot less than the college loan amount you no longer owe.
You also might find these items of interest:
- Comparing education tax credits
- No tax on latest group of forgiven student loans
- The different ways forgiven student debt is taxed
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