New Cancellation for Federal Student Loans and Delayed Repayment to 2023

On August 24, 2022, just a few days before federal student loan repayment was set to resume, President Biden announced a plan for additional student loan debt relief. Federal student loan repayment was originally halted in March 2020 at the start of the pandemic. The new plan extends the payment moratorium through the end of the year, offers partial debt cancellation, and includes proposed updates to the Public Service Loan Forgiveness program and a new income-based repayment plan. What’s new Here is the new framework for federal student loans. Loan cancellation. The plan will cancel $10,000 of federal student loan debt for borrowers with an adjusted gross income less than $125,000 ($250,000 for married couples filing jointly). The loan cancellation increases to $20,000 for borrowers who are Pell Grant recipients.1 (A Pell Grant is a federal financial aid grant award to students from low-income households.) Eligibility is based on income from 2020 or 2021, but not 2022.2 The Department of Education estimates that 21% of the borrowers eligible for relief are 25 years and younger, 44% are ages 26 to 39, and the remaining 35% are ages 40 and up, including 5% who are senior citizens. The Department also estimates

August 31, 2022 No Comments

Should you save for a child’s education in your name or theirs?

There are three potential drawbacks to saving money for a child’s education under his or her own name: the kiddie tax, federal financial aid rules, and control issues. First, the kiddie tax. At one time, saving money for college in a child’s name was recommended because of the tax saving opportunities that resulted when children were taxed at their own rate on all their unearned income. However, Congress partially closed this loophole some years ago with passage of special rules commonly referred to as the “kiddie tax” rules. Under the kiddie tax rules, a child’s unearned investment income over a certain amount is taxed at trust and estate income tax rates. In 2018, this amount is $2,100 — the first $1,050 is tax free and the next $1,050 is taxed at the child’s rate. The kiddie tax rules significantly reduce the tax savings potential for holding assets in a child’s name. The kiddie tax rules apply to: (1) those under age 18, (2) those age 18 whose earned income doesn’t exceed one-half of their support, and (3) those ages 19 to 23 who are full-time students and whose earned income doesn’t exceed one-half of their support. To lessen the impact

October 5, 2018 No Comments