Students Get a Break on Loan Repayment
Among President Biden’s executive orders during his first hours in office: continuing to delay student loan payments and interest due through Sept. 30, 2021. Here are a few answers to loan-related questions.
Q: What does the new extension mean for students?
A: Federal student loan payments and debt collections are paused, and the interest rate will remain at 0%. Note that this extension doesn’t apply to private loans, only federal.
Q: Is there an income tax exclusion on debt paid by your employer?
A: Yes. If your employer paid for your student loan debt in 2020, you receive a temporary income tax exclusion for up to $5,250 of the debt. This tax break has now been extended through 2025. This exclusion also applies to other educational assistance, such as tuition, fees and books, offered by your employer.
Q: Will any student loan debt be forgiven?
A: It’s unclear at the time of this writing as to whether President Biden will take steps to forgive any debt. Loan forgiveness isn’t part of his proposed stimulus plan but apparently the President does support a plan to forgive $10,000 or more of federal student loan debt. In addition, he has been quoted as saying that any forgiven debt shouldn’t be subject to tax. Normally tax is owed and has to be reported on your tax return.
Q: What else did Biden propose for student loans prior to becoming President?
A: Among his proposals during his run for President, Biden suggested limiting student loan payments to 5% of a person’s discretionary income over $25,000 and forgiving student loan debt for individuals who paid on the loan for 20 years. He also proposed the discharge of private student loans in bankruptcy. Only time will tell if these proposals will become law.
Q: I have a private loan for my child. Should I refinance it?
A: There’s no doubt in this low interest rate environment that it could make sense for you to refinance at a lower interest rate, thereby decreasing your monthly payments and interest you pay over the life of the loan.
Q: Should I change the repayment terms of a private student loan?
A: You have several options to consider if you’d like to change repayment terms. If you have more than one private student loan, you can combine them into a single refinanced loan at a potentially lower interest rate. You could also stretch out the repayment term up to 20 years to lower your monthly payments and free up cash. Or you could do the opposite and choose a shorter repayment schedule. It will increase your monthly payments but lower the interest you would pay over a longer term. You could also choose to prepay or pay double some months, because student loan lenders don’t charge prepayment penalties.
“Biden Extends Break on Repaying Student Loans,” insidehighered.com.
“Biden Extends student Loan Relief,” Kiplinger.com.
“Should You Refinance Private Student Loans?” nerdwallet.com.
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