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- Democrats have included a tax exemption on canceling student loans until 2025 in the stimulus bill.
- The loan forgiveness is taxable, and this exemption would eliminate the burden of a tax bill.
- Biden says he doesn’t have the power to write off student debt, but Democrats say it paves the way.
- Visit Insider’s Business section for more stories.
The cancellation of student loan debt is not included in President Joe Biden’s stimulus package, but Democrats still managed to put in place a provision that would help the nearly 45 million student borrowers in the country. country and could pave the way for debt cancellation.
On his first day in office, Biden extended the hiatus on student loan payments until the end of September, but he did not move forward on a broader student debt cancellation. He didn’t say he didn’t want to – he says he doesn’t have the authority to write off $ 50,000 in student debt per person, while adding that he could write off $ 10,000.
Senator Elizabeth Warren of Massachusetts – who ran on the $ 50,000 per person cancellation – introduced the stimulus provision with that in mind.
Any student loan debt that the government cancels is considered taxable with a few exceptions, such as the public service loan forgiveness program. But Warren, along with Senator Bob Menendez of New Jersey, included a tax exemption on all student loan cancellations until the end of 2025 to ensure borrowers don’t have to worry about a big tax bill.
Warren said she believed her tax exemption would allow Biden to take the next step and write off student debt.
She said in a statement: “This change paves the way for President Biden to use his authority to cancel $ 50,000 in student debt to massively stimulate our economy, help narrow the racial wealth gap, and ease this impossible burden of dozens of people. millions of families. “
Menendez said in a statement: “Millions of Americans were already drowning in a mountain of student loan debt before they were hit by the economic impact of COVID-19. And when they are lucky enough to get relief , the government should not then tie a heavy fiscal anchor to their financial lifeline. We now have a tremendous opportunity to ease this crippling burden and that opportunity should not be jeopardized by an arbitrary tax bill on unrecognized income. “
According to the press release, the average student borrower who earns $ 50,000 in income would save about $ 2,200 in taxes for every $ 10,000 in student loans canceled, and Warren said the exemption she and Menendez introduced. March 1 would ensure borrowers are not burdened with thousands of dollars in unexpected taxes. “
—Elizabeth Warren (@SenWarren) March 6, 2021
Progressive lawmakers have asked Biden to write off up to $ 50,000 in student loan debt since taking office. On February 4, Warren was joined by Senate Majority Leader Chuck Schumer and four other House members at a press conference calling on Biden to use his executive powers to write off student loan debt.
“There is very little the president could do with a swipe of the pen that would boost our economy more than write off $ 50,000 in student debt,” Schumer said at the press conference.
—Chuck Schumer (@SenSchumer) March 9, 2021
Schumer and Warren say they believe that Biden can use his powers under the Higher Education Act to write off the debt, but Biden disagrees, saying in a CNN town hall on Feb. 16, “I won’t do that.”
“My point is: I understand the impact of debt, and it can be debilitating,” Biden said at mayor. “I’m prepared to write off the debt of $ 10,000 but not $ 50 because I don’t think I have the authority to do it.”
But White House press secretary Jen Psaki told a press briefing on Feb. 17 that Biden would ask the Justice Department to review his ability to use executive action on the cancellation of student debt.
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