WASHINGTON, DC – MARCH 1: Senator Elizabeth Warren (D-MA) holds a press conference to announce it … [+]
The Senate on Saturday approved President Biden’s $ 1.9 trillion stimulus package, including student loan tax breaks, which proponents say is a crucial first step in paying off student debts.
The package’s largest provisions include $ 1,400 in direct payments for tax revenues less than $ 75,000 per year, extended federal unemployment benefits of $ 300 per week through September, $ 170 billion for school reopening, 100 Billions of dollars to expand vaccine distribution and an expanded child tax credit that could provide up to $ 3,600 per child in grants.
A small tax provision could be of significant benefit to student loan borrowers. The legislation exempts all student loan forgiveness from taxation until January 1, 2026. The exemption is broad and includes state-held federal student loans, state-guaranteed FFEL program student loans, and private student loans.
The cancellation of debts, including student loan debt, is often a taxable event for the borrower. Congress has identified a few exceptions, such as: B. for granting public service loans and dismissing people with disabilities. In other cases, debt relief can leave the borrower with a significant (and sometimes prohibitive) tax liability that detracts from financial benefits.
It had been unclear whether the student loan tax break would survive the Senate’s chaotic vote, in which any Senator could offer changes to the package and force votes. With the smallest majority, the Senate Democrats had to remain united in order for most of the laws to remain intact. But for the most part they did, and the student loan tax break made it into the final bill.
Senators Elizabeth Warren (D-MA) and Bob Menendez (D-NJ), who supported the student loan tax regime, praised their inclusion in the final stimulus package.
“I’m glad my bill with Senator Menendez to make student loan tax exempt was included on the COVID relief bill,” Senator Warren said in a tweet. “This paves the way for President Biden to #CancelStudentDebt without burdening student borrowers with unexpected taxes of thousands of dollars.”
“I am confident that this will pave the way for President Biden to create real debt relief that so many borrowers need and give our economy a boost that benefits everyone,” Senator Menendez said in a statement.
“Student loan borrowers desperately need relief – but in addition to reducing the amount borrowers owe, we must also ensure that we do not place an unexpected tax burden on them when their loans are extended,” said Senator Patty Murray (D-WA) who also supported the provision. “Student loan making should be tax-free – period – and that’s exactly what the American bailout plan does. “
The bill is now going back to the house for a final vote, which could take place on Tuesday. President Biden is expected to sign the bill within a week.
Student loan borrower advocates and progressive lawmakers have campaigned with the Biden government to see student debt largely reduced through executive action. Biden has indicated that he would prefer Congress to introduce student loan relief, including some level of student loan forgiveness for borrowers. Biden has supported the $ 10,000 student loan grant, but recently spoke out against the $ 50,000 student loan grant proposed by Democratic lawmakers and progressive activists.
Meanwhile, Biden has extended the current hiatus on most federal student loan payments, interest, and collections to September 30, 2021. He has also directed the Department of Justice to review the legality of the cancellation of student debt through action by the executive branch.
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