Forgiven student loans could become tax exempt under Biden’s COVID relief bill

Student loan borrowers could save thousands of dollars with a provision in President Joe bidenthe $ 1.9 trillion coronavirus relief package.

Last week, Senate Democrats nestled in the sprawling bill, the Student Loan Tax Relief Act, to exempt student debt forgiveness from tax. The provision states that anyone whose loans, private or institutional, are canceled until 2025 will not suffer tax consequences.

Most forms of canceled student loan debt are considered taxable income under the Internal Revenue Code.

If passed, the policy would help many borrowers enrolled in income-oriented repayment plans. These federal plans set monthly student loan payments at an affordable amount based on income and family size, with the government forgiving any remaining debt after 20 or 25 years.

Senators Bob Mendez (DN.J.) and Elizabeth warren (D-Mass.), Who has championed the law, celebrated its passage in the upper house relief bill and said he was putting additional pressure on Biden to cancel student debt.

“Now when student loan borrowers get relief, they won’t be burdened with thousands of dollars in unexpected taxes,” Warren said in a statement. “This change paves the way for President Biden to use his authority to write off $ 50,000 in student debt to massively stimulate our economy, help close the racial wealth gap, and ease this impossible burden on tens of millions of families.”

Menendez said he “hopes this paves the way for President Biden to deliver real debt relief that many student borrowers need and give our economy a boost that benefits everyone.”

A graduate student wears a silver lei, a necklace made from dollar bills, during the Pasadena City College graduation ceremony on June 14, 2019 in Pasadena, California. Senate Democrats incorporated the new Economic Relief Bill, the Student Loan Tax Relief Act, to exempt student debt forgiveness from tax.
Robyn Beck / AFP via GettyImages

Biden pledged to write off $ 10,000 in student loan debt per person, but rejected calls by Democrats and Progressives to increase the amount to $ 50,000.

AT CNN town hall last month, Biden said he didn’t think he had the power to write off so much student debt without Congressional action. He also said he did not want to write off debts owed by borrowers from elite schools such as Harvard and that federal funds would be better spent on early childhood education.

“I understand the impact of debt, and it can be debilitating,” Biden said at the event. “But I think at this time of economic pain and strain, we should eliminate the interest on accumulated debt, number one. And number two, I’m prepared to write off a debt of $ 10,000 but not $ 50,000. . Because I don’t think I have the authority to do it by signing the pen. “

Polls have also shown that Biden’s scaled-down plan to tackle the debt crisis is much more popular. According to a recent Monmouth University poll, the president’s speech to eliminate $ 10,000 in college debt for anyone with an outstanding federal loan has 61% support among American adults. Thirty-seven percent of those polled opposed the idea.

When the amount was raised to $ 50,000 for debt cancellation, public support fell to 45% and a majority of respondents opposed the proposal.

News week contacted the White House for comment on tax relief for canceled student loans, but had no response until publication.

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