Just after the CARES Act passed this spring, quite 35 million people with federal student loans got a note from their servicer saying their payments had been paused and their rate of interest had been set to 0% until the top of September. Over the weekend, President Donald Trump signed a memorandum extending that reprieve through the top of the year.
But if you’re one among those 35 million, don’t calculate it just yet. It’s not clear whether the extension are going to be automatic for everybody whose loans are currently on pause, or whether you’ll need to prove economic hardship going forward. It’s also not clear whether the president has the authority to unilaterally defer payments and waive interest on student loans.
“We’ve got tons of unanswered questions on one, whether it’s legal, and two, if it goes into effect, how will it differ from the prevailing payment policy and interest waiver?” said Mark Kantrowitz, publisher and vice chairman of research at Saving for school .
Even if nobody brings a legal challenge, the language in Trump’s memorandum “is not super clear,” said Betsy Mayotte, president of The Institute of Student Loan Advisors. “We think we all know what it means, but we’re expecting guidance from the Department of Education.”
Under the CARES Act, everyone with federally-held federal student loans got automatic, temporary relief, without having to prove any quite economic hardship. On top of that, while payments are paused, those working toward Public Service Loan Forgiveness or loan rehabilitation are becoming credit as if they were making payments, and collection efforts are suspended for borrowers who are in default.
Trump Student Loan Forgiveness
Numerous student loan borrowers are questioning how Donald Trump’s methods for dealing with the student loan crisis will change them going forward. In addition, borrowers are also questioning how his decision for Secretary of Education, Betsy DeVos, will require to manage federal student loans in the prospect. While being an outspoken advocate in many areas of study, she has yet to speak the demanding issue of student loans.
Both of these are critical questions that may eventually be taking early answers. Sadly, those statements are scary for a huge number of student loan borrowers. Statements as of May 2017 are that Trump and DeVos’ initial education budget will seek to pass the Public Service Loan Forgiveness program which could require student loan borrowers billions of dollars. Trump and DeVos will be expected seek to eliminate over $700 million in Perkins Loans and massively decrease the amount of work-study programs.
How Trumps New Tax Cuts and Jobs Act Makes a Difference Students & Borrowers
On 12/22/2017, the Tax Cuts & Jobs Act was enacted into law. In the 429 page document, there are changes made to existing laws that would significantly change current students, those with student loans, along with parents who have dependents on their taxes currently in school.
Student Loan Discharges No Longer Taxable Income
Section 11031 of the Tax Cuts & Jobs Act fixed student loan discharges by total & permanent disability(TPD) from being added to the borrower’s gross income. Under the new rule, discharge student loans are no longer seen as taxable income if using for disability discharge. This is a hugely advantageous change for disabled borrowers who want to utilize for discharge on their federal student loans. Before many borrowers elected not to apply for discharge and remained in an income-based repayment plan.
Disabled borrowers were hesitant to have their student loans discharged since they would see a massive tax bill expected at the end of the year, which was in many cases uncontrollable. This move made by the Trump administration comes as a tremendous support to disabled federal student loan borrowers.
One big move done in the Tax Cuts & Jobs Act is that case deductions for student loans are exterminating starting in 2018. If you are making under $65,000/yr as a single, or $130,000/yr if you are married and filing combined, you are qualified for an interest deduction on your student loans of up to $2,500. IRS records reveal that in 2015 there were 13.4m people who insisted that deduction and the common deduction was $1,100. That would change to a decreased tax liability of $275, for someone in the 25% tax bracket. It’s not a large amount, but for a struggling person out of college working to make ends meet.