Student Loan Forgiveness: Will it happen and if so, how is it going to affect me?
There has been a great deal of talk in the media, politics and even at universities about the possibility of student loan forgiveness. Both the previous administration under former President Trump and the current one under President Biden and Vice President Harris devoted significant campaign time to the concept of total or at least partial student loan clearance. What does this forgiveness actually mean for borrowers, and is it a foreseeable reality?
The Biden Administration announced at the end of September that it is excluding certain loans from its forgiveness plan. These include student loans guaranteed by the federal government but held by private lending institutions. Initially, these loans were included because they were being consolidated into federal loans; however, the administration changed course in stating that any loans that have yet to be consolidated as of Thursday, September 29 will not be eligible for forgiveness.
Even with the remaining eligible federal loans—owned by 43 million student loan borrowers to this day—there is immense pushback from several states, including Missouri, where lawsuits have been filed arguing that it is a far reach of the government to eliminate borrowers’ obligation to pay loans they voluntarily entered into. Other states that have challenged President Biden’s plans for forgiveness include Arkansas, Nebraska, Oklahoma and Pennsylvania.
Despite President Biden’s opponents, the plan has been moving forward, and here is how it could affect current college students with federal loans and recent graduates:
- Individual borrowers earning less than $125,000 in either 2020 or 2021 or married borrowers earning less than $250,000 will receive up to $10,000 of their federal loans forgiven.
- If any of these borrowers also received a Pell Grant, they could be eligible for up to $20,000 in loans forgiven.
Whether or not the forgiven loans will be taxable is a state-specific question, as some states tax forgiven debts and others do not. The states that currently place a tax on forgiven or canceled debt include: Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin. Living in California, it is important for students or graduates with eligible federal loans to not only be aware of their tax implications with regards to student loans, but also to keep up to date with the StudentAid.gov website because any and all updates regarding the President’s plans and any necessary applications to ensure eligibility will be included there. Feel free to visit the website here: https://studentaid.gov/debt-relief-announcement/
Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.
~Tia Bentivegna
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