- The $1.9 trillion stimulus package now includes the Student Loan Tax Relief Act.
- The proposed bill would end the current policy that taxes certain forms of student loan forgiveness.
- About $2,200 in taxes would be saved for every $10,000 of forgiven student loan debt.
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The Student Loan Tax Relief Act, first introduced on March 1, 2021 by Sens. Elizabeth Warren and Bob Menendez, is a part of the $1.9 trillion stimulus package. The act would end the current policy that taxes student loan forgiven by the government.
For example, if the government forgives $10,000 for a borrower who earns $50,000, that individual would be spared around $2,200 in taxes levied against that payment, according to the senators. Under the current policy, that $10,000 is considered taxable income.
If the proposed bill passes, it could be the most substantial step taken to relieve student debt in the US, which totals more than $1.6 trillion.
The new legislation would affect loans that have been “modified or discharged” between December 31, 2020, and January 1, 2025, and would include both private and institutional loans, according to a press release from Sen. Menendez.
The senators said the Student Loan Forgiveness Act “paves the way for President Biden to cancel at least $50,000 in federal student loan debt.” Biden recently rejected committing to forgiving $50,000 in student loan debt for borrowers, but said he would support forgiving up to $10,000 of borrowers’ student loan debt.
Ashley Harrington, Federal Advocacy Director and Senior Counsel at the Center for Responsible Lending, said in a press release that the bill “especially benefits low-income borrowers and borrowers of color who are disproportionately burdened by student debt and the negative impacts of the current health and economic crisis.” Harrington also called on Biden to “turn toward providing across-the-board student debt cancellation of $50K per borrower.”
The Senate approved the $1.9 trillion COVID-19 relief package last weekend, and it’s now on its way to the House for a vote. It includes a one-time $1,400 stimulus payment for taxpayers who qualify, $300 weekly unemployment assistance through early September, aid to fund vaccine distribution and testing, and aid to local governments to help combat the coronavirus. The largest provisions in the bill would affect businesses, schools, and personal finance. Cut from the package was a proposal to raise the federal minimum wage to $15 an hour.
Democrats are aiming to finalize the bill and have it sent to Biden to sign it into law by March 14.