Student loan tax relief lays the groundwork
LOS ANGELES – The US bailout that the White House is touting across the country on its “Help is Here” tour includes a provision to make any federal student loan forgiveness tax-exempt until 2025.
This legislation was spearheaded by Los Angeles Democratic Rep. Jimmy Gomez and New Jersey Rep. Bill Pascrell, and would ensure that any potential federal loan cancellations issued by Congress, or the President, would not be subject to tax – which means no surprise tax bills for Americans. if the debts were canceled.
What would you like to know
- COVID-19 assistance plan includes provision to make any federal student loan forgiveness tax-exempt until 2025
- Doesn’t mean surprise tax bills for Americans if student loan debts were to be written off
- Representative Jimmy Gomez Says Growing Industry ‘Paralyzes Graduates’, Particularly First Generation Students and People of Color
- Biden administration examines how president might deal with student loans with executive authority
Gomez pointed out that student loan debt is a trillion dollar industry that continues to grow and in turn “cripples graduates,” especially first-generation students and people of color.
“As someone who owes $ 45,000 in student loan debt from my time in graduate school in 2003, and I’m still working to pay it off, student loan cancellation is a big deal,” Gomez said.
Senator Elizabeth Warren, D-MA, among others, sponsored the Senate version of this bill. Warren said that this provision, which is now law in the pandemic assistance plan, paves the way for the cancellation of $ 50,000 in student loan debt.
She added that eliminating loan debt can help stimulate the economy and help minority Americans who could be disproportionately affected by the debt crisis and pandemic. Warren and Gomez said now is the time to make student loan forgiveness a reality.
“I’ve heard stories that from people in my district, someone owes $ 209,000, someone else owes around $ 175,000,” Gomez said. “I had a forum on this issue, and that’s one of the main issues because it keeps people from being able to save money, buy a house, start a family, really start their future. So I am proud that this bill, what it does, is that it says that if there is a forgiveness of the loan, it will be tax-free, because before this bill, anyone who obtained a cancellation would be taxed as income. So, in effect, you would be helping them on the one hand and punishing them on the other.
President Biden has expressed support for the loan cancellation worth $ 10,000, although he wants it to happen with bipartisan support from Congress – even though the issue lacks Republican support. Due to this lack of GOP support, Warren said Biden should use his executive authority to forgive billions of dollars in student debt. The administration said it was considering what power the president could use on this issue.
With executive orders and actions, the president is generally unable to make new laws or policies. But there may be a way for the president to deal with student loans through a vague Congressional provision in the Higher Education Act that gives the Minister of Education some authority to grant relief. to student debtors, but to what extent is unclear. Therefore, if the President decided to sign an order that would cost the US Treasury billions of dollars, it would almost certainly be challenged in court.
But Democrats remain hopeful, saying critics can no longer point to a potential tax burden on student loan cancellation and that many people reeling from the debt crisis and pandemic would benefit from loan cancellation.