5 steps to cancel a tax-free student loan
Here are 5 steps to getting a tax-free student loan cancellation.
Here’s what you need to know.
The new stimulus bill, which the Senate passed on Saturday and which President Joe Biden is expected to sign soon, includes a provision that would make the cancellation of student loans tax-exempt. This includes not only private and federal student loans, but FFELP loans as well. This game changer would also be make any large-scale student loan cancellations tax-free, if Congress cancels student loans or the president renounces student loans by decree. In the meantime, you can get your student loan canceled by following these 5 steps:
1. Join an income-based repayment plan
Contact your student loan manager to sign up for an income-based repayment plan. Income-based repayment plans are available for federal student loans only (not for private student loans), and they can help you get a lower monthly payment. Why? Income-based repayment plans are based on your monthly discretionary income, family size, and state of residence. If you’re struggling to repay your student loans or are unemployed, income-based repayment plans can be especially helpful. It is important to note that registration is not automatic; you must register for an income-based refund. That said, Biden has a plan to change student loans this would make the income-based rebate enrollment automatic.
2. Certify your income to get a lower student loan repayment
With an income-based repayment plan, it is possible to obtain a monthly student loan payment as low as $ 0. The main driver of your monthly student loan payment will be your income. Contact your student loan manager to certify your income. If you have already certified your income, you will be asked to recertify your income each year. If you lose your job, for example, you can get a lower monthly student loan payment. Currently, federal student loan payments are suspended until September 30, 2021. Now is a good time to recertify your income so that when student loan payments start on October 1, 2021, your monthly student loan payment will be based on your exact income.
3. Choose the Right Income Based Repayment Plan for Student Loans
There are four main types of income-based repayment plans:
- Income Based Refund (IBR)
- Pay as you earn (PAYE)
- Review of compensation as you earn (REPAYED)
- Income Based Reimbursement (ICR)
Choose the best income-based repayment plan based on your specific financial situation. Typically, each plan will require a monthly student loan payment based on a percentage of your monthly income, ranging from 10% to 20%. With a student loan calculator, compare which income-based repayment maximizes your student loan cancellation.
4. Make the student loan payment in full and on time
It sounds obvious, but it’s essential if you want to get a student loan discount. To get student loan forgiveness, you will need to make full monthly payments on time every month for 20 years (undergraduate student loans) or 25 years (graduate student loans). If you meet these conditions, your student loan balance will be completely written off. How to get a tax-free student loan forgiveness? the stimulus bill makes the student loan exemption tax-free for a period of five years: January 1, 2021 to December 31, 2025. If you signed up for an income-based repayment today, you would not be eligible for the tax-free student loan exemption before the expiration of the tax exemption provision. That said, Congress could extend the tax-free student loan exemption beyond December 31, 2025, either temporarily or permanently. If Democrats control Congress, expect the tax-free student loan exemption to be available (although there is no guarantee) beyond December 31, 2025.
5. Get a tax-free student loan forgiveness faster
You may be asking how you can get student loan discount today. You may not want to wait 20 or 25 years to get your student loans canceled. Yes Congress approves cancellation of student loan or if the president cancels student loans by order in council, you may be able to get an immediate cancellation of the student loan. However, besides income-based repayment, there is another way to get tax-free student loan remission. It won’t come today, but you won’t have to wait 20 or 25 years either. This is called the Civil Service Loan Forgiveness, and it is a federal program that will cancel your federal student loans after 120 monthly student loan payments. You will need to meet several requirements, including working full-time for a qualified public service or non-profit employer and making full payments on time each month. After you have met all the requirements, you can get a tax free student loan exemption. Biden has plan to simplify civil service loan cancellations and offer student loan cancellations of up to $ 50,000 after five years, which could cut the wait time for loan cancellations in half students.
As you consider strategies for paying off student loans faster, here are some potential options for paying off student loans: