- Democrats included a tax exemption on student loan forgiveness until 2025 in the stimulus bill.
- Loan forgiveness is taxable and this exemption would remove the burden of a tax account.
- Biden says he has no authority to cancel student debt, but Democrats say it paves the way.
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Student loan debt cancellation is not included in President Joe Biden’s stimulus plan, but Democrats have still managed to establish a provision that would help the country’s nearly 45 million student borrowers and could pave the way for debt cancellation.
On his first day in office, Biden extended the pause on student loan payments until the end of September, but did not change to a broader cancellation of student debt. He did not speak up and said he does not want to – he says he has no authority to cancel $ 50,000 in student debt per person, although he can cancel $ 10,000.
Senator Elizabeth Warren of Massachusetts – who decided to cancel $ 50,000 per person – introduced the stimulus clause with that in mind.
Any student loan debt that the government cancels is considered taxable, with some exceptions, such as the public service loan forgiveness program. But Warren, along with Sen. Bob Menendez of New Jersey, included a tax exemption on all student loan pardons until the end of 2025 to ensure that borrowers did not have to worry about a large tax levy.
Warren said he believed his tax exemption would pave the way for Biden to take the next step and cancel 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 provide a massive stimulus to our economy, help bridge the racial wealth gap and lift that impossible burden. tens of 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 some relief, the government shouldn’t . tie a heavy tax anchor to your financial lifeline. We now have a tremendous opportunity to ease that crippling burden and that opportunity should not be undermined by an arbitrary tax law on unrecognized income. “
According to the press release, the average student loan taker who earns $ 50,000 in income would save about $ 2,200 in taxes for every $ 10,000 in forgiven student loans, and Warren said the exemption she and Menendez introduced on March 1, it would ensure that borrowers are not “overwhelmed with thousands of dollars in unexpected taxes.”
—Elizabeth Warren (@SenWarren) March 6, 2021
Progressive lawmakers have asked Biden to cancel up to $ 50,000 in student loan debt since he took office. On February 4, Warren was joined by Senate majority leader Chuck Schumer and four other members of the House at a news conference to ask Biden to use his executive powers to cancel student loan debts.
“There is very little the president could do with a touch of a pen that would boost our economy more than canceling $ 50,000 in student debt,” Schumer said at a news conference.
—Chuck Schumer (@SenSchumer) March 9, 2021
Schumer and Warren say that believe that Biden can use his powers under the Higher Education Act to cancel debts, but Biden disagrees, saying at a CNN city hall on February 16, “I am not going to make that happen.”
“My point is: I understand the impact of the debt and it can be debilitating,” said Biden at City Hall. “I am prepared to cancel the $ 10,000 debt, but not $ 50, because I don’t think I have the authority to do so.”
But White House press secretary Jen Psaki said at a press conference on February 17 that Biden would ask the Justice Department to review its ability to use executive actions to cancel student debts.