The U.S. Senate passed an amended version of the American Rescue Plan of 2021 on Saturday, March 6, 2021, by a vote of 50 to 49 along the political lines. One of the changes adds the student loan tax exemption to the House version of the bill. The chamber expects to adopt the Senate version of the bill, and the president said he would sign it into law.
The American Rescue Plan Act of 2021 includes a provision for federal and state tax relief … [+]
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Section 9675 of the 628-page legislation amends the tax treatment of student loan forgiveness in 2021 to 2025, inclusive.
The legislation excludes from the income the total or partial discharge of the debts of the student loan, making it exempt from taxes.
Eligible loans include:
- All federal student loans and federal parent loans, including direct loans, FFEL loans (whether held by the U.S. Department of Education or commercial creditors), Perkins federal loans, and federal consolidation loans
- All loan programs for state education
- Institutional loans granted by a college or university
- Private loans for students and private loans for parents
Loans must have been made, secured, or secured by the federal government, including federal agencies such as the U.S. Department of Education, state governments, colleges, and universities, and private education loan lenders. The loans must have been made “expressly for post-secondary education expenditure, whether provided through the educational institution or directly to the borrower”.
Most student loan forgiveness programs were already tax-exempt. These include:
- Forgiveness for work in a particular occupation, such as Forgiveness of Public Service Loans, Forgiveness of Teacher Loans, Certain Forgiveness Loan Programs for Physicians and Nurses, and several forgiveness programs for federal Perkins loans.
- Death and disability discharges on federal and private student loans
- Discharges closed
- False certification downloads
- Unpaid refunds
The main difference is that now forgiving the remaining debt after 20 or 25 years in an income-based repayment plan will be tax-exempt. Only borrowers on income-based repayment plans will qualify for forgiveness before the tax-exempt status expires at the end of 2025. This will benefit several hundred thousand borrowers, most of whom live below the poverty line of tens of thousands. years.
President Biden’s $ 10,000 proposal to forgive student loans will qualify for tax-free treatment.