What does the Covid-19 stimulus bill mean for loan forgiveness, financial aid and students?
Congress passed the $ 1.9 trillion Covid-19 relief law on Wednesday, which provides about $ 40 billion for higher education, including provisions for financial aid and student loan cancellation. Here’s what students and parents need to know about the bill, that President Biden is expected to sign this week.
This is the largest federal allocation for pandemic relief in higher education to date.
This is not the first time that federal funds have been allocated to higher education institutions and students seeking relief from the pandemic, but it is the largest allocation to date. In March 2020, the Coronavirus Aid, Relief and Economic Security (Cares) Act established the Higher Education Emergency Relief Fund and allocated around $ 14 billion in emergency funding. of higher education. In December, higher education institutions received an additional $ 23 billion through the Coronavirus Response and Relief Supplementary Appropriations Act (CRRSA).
From now on, institutions will receive approximately $ 40 billion. This is less than the $ 97 billion estimated by the American Council on Education for schools and students would need to recover from the losses associated with the pandemic, but the higher education lobby group hailed the legislation as “the biggest federal effort yet to help students and families struggling to cope with job loss or declining wages and colleges and universities facing a sharp drop in income and a surge in new spending.
Half of the funding will go to emergency student financial aid.
At least 50% of the total funds that each institution receives must go directly to students for emergency financial aid.
When each institution receives funding, it decides which students receive assistance. While some institutions might choose to give the majority of aid to Pell Grant recipients, others might make it more widely available.
But schools must also consider federal funding restrictions. When the first round of funding came out via the Cares Act, schools were constrained by “Title IV student aid under Section 484 of the Higher Education Act”. This meant that students who received assistance had to meet certain criteria, such as having a valid social security number and having a high school diploma, GED, or high school diploma from an approved home schooling institution. .
But for the December funding round, which many colleges continue to distribute, and the funding round just approved, institutions are urged to prioritize students with exceptional financial needs.
However, it is still not clear whether non-citizens, such as international students or those in the Deferred Action Program for Childhood Arrivals (DACA), will be eligible.
Students can use the funds from this legislation to cover any element of the cost of their participation, as well as any emergency costs that have arisen due to the coronavirus, including tuition, food, accommodation, health care. , mental health care and child care, says Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators.
Students may need to complete an application to receive the funds.
How students receive the funds will depend on the institution.
In some schools, in previous rounds of aid, administrators made direct payments to qualified students, such as those with Pell Grants, or those with low expected family contributions based on their free application forms. federal student aid, or Fafsa. Other schools set up pools of funds which they distributed after reviewing student applications. “We’ve seen a good number of schools that have made a hybrid of the two,” Ms. Coval says.
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Students will need to check with their individual schools to find out more about how the funds will be distributed, Ms. Coval says. Additionally, some students should expect to wait a few weeks for their institution to determine how the money will be spent. “Where it gets difficult is that we don’t know at this time if undocumented, DACA or international students can get these funds, so some schools are hoping that they can, and not all of them push yet their funds, “she said. Ms. Coval said there were no written guidelines yet from the U.S. Department of Education on whether these students were eligible for the December funding round, and she hopes that advice will be published in the coming weeks.
In addition, as part of the legislation, the Department of Education is urged to use $ 91 million to help students and borrowers complete federal financial aid forms, as well as unemployment assistance and d other benefits to which they may be entitled as a result of the pandemic.
The forgiveness of student loans is tax free.
The stimulus legislation means that any student debt canceled after December 31, 2020 and before January 1, 2026 will not be taxed. Federal law generally treats any canceled debt as taxable income.
In the short term, the new provision will mainly affect borrowers with income-based repayment plans. These are people whose monthly federal student loan repayments are based on their income and who repay their loans over a period of 20 to 25 years. If, after 20 to 25 years of payments, the borrower’s federal student loans are not fully repaid, any remaining balances are written off. Until the law is passed, the canceled loan balance would also be taxed at the borrower’s normal income tax rate.
Not many people have qualified for forgiveness under these types of repayment programs because they haven’t been around long enough, says Mark Kantrowitz, a short term loans and financial aid expert.
Students who are considered dependents may be able to receive stimulus through their families.
Dependent adults were not eligible for previous rounds of payments, but are now included in the latest legislation. Latest payments total $ 1,400 per household member, including adults, children and dependent adults such as students. Payment will go to the taxpayer and not to the dependent student.
But there are income limits. People with adjusted gross income of $ 80,000, heads of households with income of $ 120,000 and married couples with income of $ 160,000 will get nothing.
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