Don’t Miss Your Chance to Save Big with the One-Time Account Adjustment

There’s been plenty of media attention around the Biden Administration’s $10-20K federal student loan forgiveness since it was proposed in 2022. It got push back from the Supreme Court with doubts about its constitutionality, and now it appears as though it will not pass. This would have amounted to a projected $400-700 billion in loans forgiven, which would likely be paid for by American taxpayers.

But here’s some interesting news you probably haven’t heard of: Recent updates to the federal student loan program will allow some borrowers to count backdated months toward their loan forgiveness date, and the Biden Administration is waiving federal taxes on loans forgiven through 2025.

These changes apply to more than 43 million Americans holding federal student loans, and may amount to a projected ~$400 billion in loans forgiven. But many don’t know how to take advantage of the new rules, nor how they’ll be affected when forgiveness occurs.

The waiver allows borrowers to have all previous payments, regardless of loan or repayment type, count toward forgiveness. Backdated payments may now include any months deferment prior to 2013 and any months of payments before consolidation of federal student loans.

The waiver expires on December 31, 2023, so borrowers who want to take advantage of this provision must consolidate their loans in the Department of Education’s Direct Loans Program before the end of the year. Some who consolidate their loans on time will find they are much closer to their loan forgiveness date than they realized, and some will even receive a refund for months or years paid beyond when they should have received forgiveness.

Here’s the real kicker - Once the loans are consolidated, there's no way to differentiate the loan sets. So if you graduated in 1995 with student loans and then went back to school in 2020 and acquired more loans — and then consolidate them before the end of 2023 — the Department of Education will backdate all the loans to 1995, meaning even the new loan will be forgiven.

And there’s more — The American Rescue Plan Act that Biden passed in March 2021 was implemented to make sure any canceled debt from Federal Student Loans is not subject to federal taxation and was put in place to offset the taxes that would be assessed on the $10-20K in forgiveness. This has an added benefit for anyone that benefits from the One Time Account Adjustment and reaches a total of 20-25 total years of payments, will not have taxes due on the forgiven debt. Canceled federal student loan debt normally involves a tax implication. But all canceled debt on federal student loans between December 2020 until December 31, 2025, will not be taxed. Please note there may be state tax for borrowers in Minnesota, Arkansas, Indiana, Mississippi, North Carolina, and Wisconsin.

This is also newsworthy because it sets a precedent for further student loan reform. There may be future class action lawsuits to drop the tax implication altogether. The general trend in legislative changes is only improving the repayment programs so they’re more in favor of the borrower.

Who should get help?

• If you have federal student loans older than 2013
• If you had a break between undergraduate and graduate degrees
• If you don’t already have a direct consolidated loan

If any of these applies to you, we highly recommend reaching out to schedule a free evaluation call to ensure you’re in the best scenario before the waiver ends. You can schedule that here.

What should I keep in mind?

• You must consolidate different loan sets into a single direct loan
• You must be enrolled in an active Income-Driven Repayment program or Public Service Loan Forgiveness program
• You must submit your application before December 31, 2023

So while everybody is looking at the Biden $10-20K forgiveness proposal that’s unlikely to go through, this is the sleight of hand that's benefiting many Americans — but only those who know how to take advantage of it. Don’t miss the potential impact of this one-time account adjustment. Get our assistance and schedule your free evaluation here.