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TIFFANY'S TAKE: STUDENT LOAN FORGIVENESS

loans personal debt podcasts Sep 20, 2022

Every Tuesday, Tiffany answers one of your submitted questions. To submit a question for an upcoming episode, visit here: https://www.moneytalkwitht.com/asktiffany

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Episode 134

[00:00:00] Intro/Outro: You know what it is. That's right. It's time to talk money with your money, nerd and financial coach. Now tighten those purse strings and open those ears. It's the Money Talk with TIFF podcast.

[00:00:15] Tiffany Grant: All right. Y'all. I'm gonna hop right in because this one was requested by one of the listeners. So thank you so much for letting me know what you wanna hear about for this finance Friday live. And it's gonna be all about the Biden student loan forgiveness, right? Cause that is a hot button topic. There's been a lot of updates since I talked about it, what two weeks ago?

[00:00:39] So I'm like, let me go ahead and revisit it because obviously everybody has questions. It's a lot going on. It's a lot to take in which I completely understand. I'm trying to keep up myself so that way I can let you all know what's going on, but I'm gonna start with. The basics, what it is just in case there's people watching that [00:01:00] have not heard yet, or have no idea what's going on.

[00:01:03] Start off with that, then I'm gonna go over some important dates to keep in mind, and then I'm gonna go over. If you are eligible for a refund, on any of the payments that you made during the pause. And then I'm gonna go over taxes because some states are trying to tax in North Carolina where I live is one of them.

[00:01:27] So I was like, let me go ahead and cover all of these. So I will only be covering student loan forgiveness because as you can see, there's a lot to go over. If this doesn't apply to you and you're like, I really don't care. I don't, this is not, then I'm telling you now, this is exactly what I'm gonna be going over.

[00:01:48] So feel free to stay and educate yourself. Maybe you could educate someone else that is eligible, but this is exactly what was asked of me by an audience member. And this is what I'm going [00:02:00] to give, mama's money map. Yes . So she asks for real, they're trying to tax student loan forgiveness. Yes. There's actually, I think seven states, the last I checked, that's trying to tax this forgiveness.

[00:02:15] So I'm gonna go over that as well. What the possible tax rates and stuff might look like. So yeah, that's coming up towards the end. All right. So let's go ahead and get started with just the basics of what's going on. As we all know if you followed the politics before Biden got elected, he said that he was looking at student loan, forgiveness, widespread.

[00:02:38] That is one of his platforms. That's what he wanted to do for the people. And so for the whole time he's been president, I know I've been one of 'em like. Where's the student loan forgiveness, cuz your girl needs it. So finally he made an announcement saying what the plan would look like.

[00:02:56] So there's a few parts to the plan [00:03:00] and bear with me cuz I'm looking at the government website right now, just so I can make sure I get everything right for you. so part one is they're gonna do a final extension of the student loan repayment. Pause. If you didn't know, you've been under rock since COVID, the government has extended at least four or five times.

[00:03:17] Now you having to pay back your student loans, if you have federal loans. So they're doing it one final time and they've made it clear that this is the final time. It will extend the pause through December 31st, 2022, which means payments will start resuming January, 2023. Now whether or not you qualify for student loan forgiveness, if you have federal student loans, that's when they would be due.

[00:03:47] But like I said, in the previous live, talk to the student loan servicer that you used because I talked to mine and they said, even if they didn't extend it again, and let's say it was the end of August, like it was originally. I [00:04:00] still wouldn't have to pay until lay of next year because of the type of plan I was on.

[00:04:04] So talk to your student loan servicer and see with your individual circumstances, if you would have to pay as of January, cuz it might not be the case. So that's part one. Then part two is providing targeted debt relief to low and middle income families. So this is the big part that a lot of people are talking about now.

[00:04:25] So what the us department of education is going to do is provide up to $20,000 in debt cancellation to Pell grant recipients with loans held by the department of education and up to 10,000 in debt cancellation to non Pell grant recipients. If you're not familiar with what a Pell grant is, when you applied for school and you filled out your FASFA they use that information to determine if you're eligible for a Pell grant, usually for low or middle income families.

[00:04:57] If on your [00:05:00] application, you indicated that with your income levels and things like that, or your parents' income levels, if they fit that category, you was probably eligible for a Pell grant. You would've seen it on like your college statements, even though I'm like what students really look at those. I was one of those that did, but, so I know I got Pell grants, but if you looked at it and you saw a Pell grant, then you would be eligible for the bigger amount, which is 20,000.

[00:05:27] Now borrowers are eligible for this relief. If their individual income is less than 125,000 for single or 250,000 for households. So what does that mean? If you file your taxes by yourself, you not married, you just. Single person you would have to make less than 125,000 to be eligible. If you're married, then you all would have to make less than 250,000 combined.

[00:05:56] Okay. Now, [00:06:00] also in addition, borrowers who are employed by nonprofits, the military or federal state tribal or local government may be eligible to have all of their student loans forgiven through the public service loan forgiveness program. So pretty much what they did was extended the eligibility requirements for the public student loan forgiveness program.

[00:06:21] So this has always been in existence, but now it's. as difficult to get anymore. so if you work for a nonprofit, military, or federal state tribal, or local government, you may be eligible to have all of your student loans dismissed. Okay. The temporary changes they made to the program will expire at the end of October.

[00:06:43] So October 31st, 2022. So if you feel like you're eligible for that, you need to go ahead and apply and make sure. And you would do that through your service. And then also you can go to pslf.gov to find out more information about that program, but you would apply. Through [00:07:00] your servicer, if you feel like you are eligible for that.

[00:07:02] I, if you notice in all of the talk, they keep saying up to $20,000 or up to $10,000 reason, they're saying that is because let's say you're in, if you're eligible for 20,000 in debt relief, but you only have 15,000 remaining. They're only going to dismiss that 15,000. It isn't there. You're not gonna get 20. And then they gonna give you five just for free. No, it's only up to what your balance is. So that's what they mean when they say up to X, Y, Z.

[00:07:33] The us department of education does have access to your income data, because if you file your taxes, They usually have that information, but if they do not have your income data or let's say , your situation changed since the last time you filed taxes, they will launch a simple application, which will be available by early October.

[00:07:56] So make sure you mark that on your calendar as well. Early [00:08:00] October is when you can fill out the application for the 10,000 and $20,000 student loan forgiveness. If you wanna be notified when the application is open, then just go to the department of education, subscription page, and then you can sign up for email.

[00:08:19] Alert there. Sorry. I meant to put this on, do not disturb somebody texting. So once a borrower completes the application, if you decide to do it that route, you can expect relief within four to six weeks personally. I'm like, I might go ahead and file the application anyway, and that's what I suggest you do.

[00:08:38] And actually that was the next bullet point on this. The government's website is we encourage everyone who is eligible to file the application. But there are 8 million people for whom we have data and who will get the relief automatically. So I'm saying just to check all your boxes, go ahead and fill out the application.

[00:08:56] When it comes out at the beginning of October, early [00:09:00] October, sometime. make sure you sign up on the government page so that we can get a notification when the application is open and then just do it that way. And in that way, you can make sure you cover in both bases if they're gonna do it automatically.

[00:09:14] Or if the application is what they're gonna go off of. They are advising that people apply before November 15th in order to receive relief before the payment pause expires on December 31st. So don't wait until the last minute. Matter of fact, I would suggest if you are eligible. Go ahead and fill out the application ASAP as soon as it drops.

[00:09:37] And that way can be out the way because wouldn't it be horrible if you like, okay. The application's out. All right, I'm gonna wait. And it's November 16. And so now you can't do it. just go ahead and get it done. And then it says, , they will continue to process applications as they are received, even after the pause [00:10:00] expires on December 31st.

[00:10:01] So if you don't see it applied to your account by December 31st, don't panic, they're probably still working on it. Mind you, it's millions of people that are eligible for this, , everybody's short staffed. So it may take some time.

[00:10:15] Then the third part of the student loan thing that's coming down the pipeline. I don't even know what to call it. Part three is that they wanna make the student loan system more manageable for current and future buyers. So they are requiring bar borrowers to pay no more than 5% of their discretionary income monthly on undergraduate loans. It used to be 10%. So that's going down.

[00:10:38] So even if you have debt. Whether or not, you qualify for this instead of basing it on 10% of your discretionary income. Now they're basing your payments on 5%. They're also gonna raise the amount of income that is considered non-discretionary income, and therefore is protected from repayment. Then they're gonna forgive loan balances after 10 years of [00:11:00] payments instead of 20 cuz it used to be. You had to make 20 years of payments before loan balances were forgiven. Now it's gonna be 10 years, but that's only with loan balances of $12,000 or less. You know how Dave Ramsey's your student loans around so long, it's become a pet now, hopefully that won't be the case for a lot of people anymore. And then cover the borrowers, unpaid monthly interests that unlike other existing income driven repayment plans, no borrowers loan balance will grow as long as they make their monthly payment.

[00:11:34] Even if that monthly payment is zero because their income is low. What does that mean? They're not gonna charge you interest as long as you're making your monthly payment. So now it becomes even more important to make your monthly payments every month on your student loans. So for those people that are like, I'm not paying my student loans.

[00:11:52] They're not gonna dime outta me then now it's gonna be a accruing. I mean, it was always a accruing interest, but now they're incentivizing people [00:12:00] to go ahead and pay them. So make sure you keep that in mind. So those are the three parts to the plan that is starting to roll out. They've already done the public service loan, forgiveness expansion that's already done.

[00:12:14] Now they're working on the second part and then they'll be working on the third part. so now let me recap those dates. So make sure you're writing this down. Y'all early October is when the applications would open up. So make sure you mark that down early October and go ahead. Like I said, I'm gonna say it one more time, cuz I know we hardheaded go on a department of education's website and make sure you sign up for the notification via email.

[00:12:47] When the application's open, but it's gonna be early October. They haven't announced a specific date. So I don't have any more information. Other than that. But you can just sign up for updates on the website, [00:13:00] November 15th. That is when they're gonna close the applications. So make sure that you apply between early October and November 15th.

[00:13:11] Now, like I said, I suggest that you just do it as soon as it opens. So A you can be at the top of the line and then B you can just get it out the way and forget about it. And you don't have to worry about doing it anymore. then December 31st is when student loan borrowers, regardless. If you qualify for this forgiveness or not, if you have federal student loans, the pause on the payments will expire.

[00:13:40] If you have outstanding debt after the amount is forgiven, make sure that you have enough money set aside to begin resuming payments, because you will still go, you still gonna have to pay. Now, like I said, my tip is. To call the student loan servicer and see when based on your particular circumstances, [00:14:00] you would have to start paying, because like I said, I called mine and it's not gonna be, January's gonna be May

[00:14:05] and I might call them again since this announcement. Cuz when I called last time, it was like in June before they made this announcement. And so I might call them even again. just to make sure we all on the same page, cuz you don't wanna get caught with your pants down. come January 1st. So make sure that you know exactly what you're walking into.

[00:14:25] And when I called, I was trying to figure out how much my payment was gonna be when it was gonna be due. And when the payments would start and low and behold, she was like, you don't even have to worry about it until may. So make sure you do that and make sure that you get your paperwork in order. Now, just in case on the application, which I don't know, they said it was simple. Is anything in the government simple? Hmm. They said it was simple, but make sure that, whether or not you got a Pell grant, if you could put, get your hands on any of those documents, please do, just to make sure you have everything you [00:15:00] need for when that application opens, because we don't know what's gonna be on it. So you might as well go ahead and start collecting your information now.

[00:15:07] Hey, it's Tiffany, are you interested in starting a podcast? We can get up to two months of free podcasting service from Libysn with the code Moneytalk get your show on apple podcasts and Spotify anywhere you want. Get critical stats to help you grow. Find all the tools and support you need to sound your very best and you can even do video, really bring your podcast to life with Libsyn you can use code again, Moneytalk to get two months of free podcasting service. This is what I use to get my podcast to your listening ears. Enjoy

[00:15:44] A few made payments during the payment freeze, which I was telling people, if you had it, go ahead and do it, which now you gonna be glad you did. If borrowers are eligible for the forgiveness plan. And you made [00:16:00] payments on your student loan debt during the pandemic era, pause on the bills, you'll be automatically refunded those payments.

[00:16:10] So your servicer is supposed to go back and say, okay, this person was making a payment of $200 a month during the pause, but now they're eligible for forgiveness. They should automatically refund you those payments. The status that more than 9 million people made at least one payment on their federal student debt between April, 2020 and March, 2022, but also the vast majority of borrowers haven't made any payments taken advantage of the suspension, which either way was fine. But now if you did go ahead and make the payments, you can get that money back.

[00:16:51] Which payments are eligible for refund? So payments made since March 2020 or federal student loans eligible for the pause should now be [00:17:00] refundable. So have you made any payments between March, 2020 and now those payments should be refunded. Now, any payments made before the pandemic don't qualify. Also, if you have commercially held federal family education loans. So the FFEL loans, those weren't eligible for the payment pause and they won't be eligible for the refund either.

[00:17:26] Hey, Finlay guy. So how do you request a refund? You shouldn't need to apply for them, because everything should be automatic. But the only caveat is if you paid your loan in full during the pandemic. So let's say you paid off your student loans, then you'll have to take action and request the payments back. So if you still have a balance, you still, with your same servicer, they should refund it automatically. Any payments that you made between March, 2020 and now. But if you paid off your loan in full, [00:18:00] which kudos to you, you'll have to take action and request the payments back. Also people who may have refinanced their federal loans will, may need to ask their student loan servicer for the refund. So the common thread here is if you no longer have the servicer. So whether you paid that off or you refinance with somebody else, then you wanna go back and call that servicer that you previously had. And you can get back everything that has been paid since March 13th, 2020. So they're not capping that. So whatever that looks like for you, that is how much you will get back. And the goal should be to get the maximum forgiveness that you're eligible for.

[00:18:46] All right. Now let's get nasty part because when I saw this, I said for real, they trying to text the student loan forgiveness. So as of today, because this article was updated two [00:19:00] hours ago, there are seven states that are looking to tax the student loan forgiveness, if you're eligible, which I feel is so crazy, because one, this is supposed to help low in middle income families. And then two I'm like if they're trying to help. Now here come the states with their hands out oh even though this was forgiven, we still need some money because now that's taxable income. I just don't think it's right, but that's neither here nor there. I don't make the laws. I'm just here to go over. 'em the seven states are. Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin. So if you're in any of those states, you may have to pay taxes on your student loan, state taxes on your student loan forgiveness.

[00:19:56] So if you're living in a state, you [00:20:00] should be prepared and try to set the money aside just in case they try to come after your money as a result of this. So I'm gonna go state by state cuz I notice people watching from all over. So I wanna make sure I cover the states that I know about right now. So for instance, in Arkansas, they have graduated income tax rates from 2% to 4.9%.

[00:20:22] So you would. Whether you're getting the 10,000 or the 20,000, take that, and then calculate based on Arkansas taxes. For instance, if you getting 10,000 and it's 2%, then you would, mm. My mind just went, you have to pay $200. Okay. So just keep that in mind. Now, also keep in mind too. there are other strategies to make sure that you keep your tax bill low.

[00:20:51] So like, when I read this and North Carolina is one of the states I'm like throughout the year, I do tax saving strategies anyway, and I have my own business [00:21:00] and all types of stuff. So it could be possible where I probably wouldn't have to pay that. Or at least not that much, but just start keeping this in mind. If you have already figured out your year, and you already had an idea of how much your taxes would be. Make sure you take this now into consideration. If you live in this state, because it may reach your tax burden. California is another one. They have graduated rates based on your taxable income with percentages ranges from ranging from 1% to 12.3%.

[00:21:34] Although the higher tiers exceed the income limits for student loan forgiveness. The people that are eligible probably won't be in the 12.3% range, but just double check. So for example, if a single person has a taxable income of $40,000, their next dollar of income is taxed at 6%. So that's how California works.

[00:21:57] So you would have to go to [00:22:00] the website, see what the text rates are, and then calculate your way from there. Indiana. Indiana has a flat tax rate of 3.2, 3%. So this is not graduated. So that means you're either gonna pay $323 or $646 of state tax liability. So even in the grand scheme of things, and this is what I was looking at too, cuz North Carolina also has a flat tax rate, but I was like, and I'm gonna get to North Carolina in a minute, but there's is 4.99.

[00:22:33] So I'm like, mm, they gonna take $499 or almost a thousand, but I'm getting 10 to 20 because of my getting forgiven. I'm like, you know what, whatever, go ahead and take your money. I will take that. But unfortunately still don't make it right in my opinion. But I'm like in the grand scheme of things, I would happily [00:23:00] pay that tax bill to get that amount forgiven.

[00:23:03] So anyway, then Indiana residents, cuz I'm on Indiana. You may also have to pay county tax depending on your jurisdiction. So make sure you look at that too. So even though you have a flat tax rate, you still might have to pay your county tax too. So make sure you look at that.

[00:23:23] Minnesota. Minnesota's income tax rates are graduated. So they range from 5.3, 5% to 9.8, 5% for 2022. So make sure that you are checking that out. Minnesota's department of revenue is actually working on an example to share with borrowers. So Minnesota's serious about this thing so , if you live in Minnesota, Go ahead and get your coins ready. because they're like, we are even going to give you an example of what this is gonna look like. So I don't think they're overturning [00:24:00] theirs. All right.

[00:24:01] And then we in North Carolina, so that's where I live. We have a flat tax rate of 4.9, 9% for 2022. So like I said, the tax liability would be 499. If you qualify for 10,000 or $998, if you qualify for 20,000.

[00:24:18] Then we have Wisconsin, which is the last one. They have graduated rates as well. So it depends on income with rates ranging from 3.5, 4% to 5.3%.

[00:24:32] Now we've talked about this before. There's so many different ways that you can lower your taxable income throughout the year by putting money in your work retirement plan, contributing to HSAs and FSAs. There's a lot of different strategies you can use throughout the year to make sure that your tax bills as low as possible. So just keep that in mind, as you're factoring all this stuff, be like, Hmm, now don't take this as advice. I'm just [00:25:00] joking, but you might be like, Hmm, I might get, throw some money at FSA real quick and knock that down or HSA real quick and knock that down. I'm just saying cuz HSA don't expire either. So you can keep rolling that money over. So if you have access to HSA, you might can throw that over there and not even have to awe this stuff. But anyway, you ain't hear that from me. I'm just saying, look at all your opportunities. Okay. Because there's different ways you could lower your tax bill and this might not even be an issue.

[00:25:33] Please be prepared. Y'all if you're in one of those states that is going to tax this help that the government's giving it's unfortunate, but it is what it is. And I feel like, I almost feel like we should all be prepared just in case cuz you know how it is. Sometimes y'all where one government will do something. Then they're like, oh. [00:26:00] They got a lot of money from that. Let's see if we can do it. , I'm gonna just say, just to be on the safe side, I always say prepare for the worst case scenario. So I'm gonna say, go ahead. Regardless of the state, even if you not in any of these seven states that have announced it, your state may not have announced it yet. Okay, so just go ahead and look up what your tax rate is. Get that in your head. If you're eligible for these forgiveness, the student loan forgiveness plan. So that way you won't be caught, which pass down, it's just better to be safe than sorry. At the end of the day. so hopefully that was helpful. Woo. We spent a whole 30 minutes almost on talking about these, the student loan, forgiveness and student loan plan or whatever, but it's really good information.

[00:26:50] And I might actually double this episode up as my ask Tiffany for Tuesday. So if you missed it, you might be hearing this on the podcast too, [00:27:00] but. The important thing is somebody asked me this question. They like, Tiffany, give us the full rundown. So that's what I did today. And hopefully it was helpful. Like I said, this is streamed live on Facebook, Twitter, Instagram, and YouTube. So if you're following. Me on any of those platforms, you can go back and watch the replay. I leave it out there for y'all. And if you have any comments, questions, whether you're looking , at it live or the replays, please still drop them because I will go back and answer people, drop them before for previous Friday, I will go back and still answer your questions.

[00:27:37] Or I might say, oh, I'm gonna cover that next time. So make sure your questions are heard so that way I can help you. but hopefully this has helped somebody today because it was a lot to go over and I just wanna make sure we all have a good understanding of what's going on with these student loans. And I'm telling you.[00:28:00]

[00:28:00] Let me just recap these dates again early October is when we need to be putting in these applications. Okay. Y'all put on your calendar now. Just put October 1st. just so you could be on the lookout. Okay. And also sign up for the notifications on the website. So that way you will be one of the first to know.

[00:28:22] I know I'm about to go do that right now because I need my 20,000. Okay. I was looking at my net worth. And I was like this 20,000, like I would be, I think I would be in six figures in net worth. I need that. Y'all I need it. So yes. I'm gonna say, go ahead. I'm gonna do that right now. After I get off this live, it's go and put in that notification.

[00:28:47] My email, please. Let me know when these applications go live. November 15th is the deadline. Don't wait until the last minute. Just do it ASAP. December 31st is when. All student [00:29:00] loan payment pauses end. They have said, this is the last time. So don't think that they not, they gonna extend again is probably not gonna happen.

[00:29:11] They have reiterated that multiple times. That's the last time. So January 1st, they're gonna come do. y'all. And then also the last point was to make sure you figure out your state taxes, cuz some of these states is tripping and , they're trying to take some of the moneys those are my tips for day. And if, like I said, if you missed it, watch the replay.

[00:29:34] I go over tips for each of those different points. So anyway, I love y'all and I look forward to seeing you next Friday at noon. Bye.

[00:29:45] Intro/Outro: Thank you for listening, joining, and being a part of the money. Talk with Tiff podcast this week, you can check TIFF out every Thursday for a new money talk podcast, but if you just can't wait until next week, you can listen to previous podcast episodes at [00:30:00] moneytalkwitht.com or follow TIFF on all social media platforms at MoneytalkwithT until next time spend wise by spending less than you make a word to the money wise is always efficient.

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