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The US Senate passed an amended version of the American Rescue Plan Act of 2021 on Saturday, March 6, 2021, by 50 votes to 49 politically. One of the amendments adds the tax-free student loan remission to the House version of the bill. The House is expected to pass the Senate version of the bill and the president has said he will sign it into law.
The American Rescue Plan Act of 2021 includes a provision for the tax exemption of … [+]
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Section 9675 of the 628-page law changes the tax treatment of the student loan forgiveness from 2021 to 2025 inclusive.
The legislation excludes the full or partial release of student debt from income, making it tax-exempt.
Eligible loans include:
- All Federal Student Loans and Federal Parent Loans, including Direct Loans, FFEL Program Loans (whether held by the US Department of Education or commercial lenders), Federal Perkins Loans, and Loans federal consolidation
- All state education loan programs
- Institutional loans from a college or university
- Private student loans and private parent loans
The loans must have been made, insured, or guaranteed by the federal government, including federal agencies, such as the United States Department of Education, state governments, colleges and universities, and private lenders of loans to the education. Loans must have been made “expressly for the cost of post-secondary education, whether provided through the educational institution or directly to the borrower.”
Most student loan forgiveness programs were already tax exempt. These include:
- Forgiveness for working in a particular profession, such as public service loan forgiveness, loan forgiveness for teachers, some loan forgiveness programs for doctors and nurses, and several forgiveness programs for federal Perkins loans.
- Federal and private student loan death and disability releases
- School outings closed
- Rejections of false certifications
- Unpaid refund rejections
The main difference is that now forgetting the remaining debt after 20 or 25 years under an income-based repayment plan will be tax exempt. Only borrowers with income-tested repayment plans will be eligible for a discount before tax-exempt status expires at the end of 2025. This will benefit several hundred thousand borrowers, the majority of whom live under. the poverty line for decades.
President Biden’s proposal for a $ 10,000 student loan forgiveness will be eligible for tax-free treatment.
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