The U.S. Senate passed a amended version of the 2021 U.S. Rescue Plan Act on Saturday, March 6, 2021, with a 50-49 vote on the political line. One of the amendments adds the forgiveness of the tax-free student loan to the version of the House bill. The House is expected to approve the version of the bill in the Senate and the president has said he will sign it into law.
The 2021 U.S. Rescue Plan Act includes a provision for tax-free discharge of federals and federals … [+]
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Section 9675 of the 628-page legislation amends the tax treatment of student loan forgiveness between 2021 and 2025, inclusive.
The legislation excludes from the income the total or partial payment of the debt of the student loan, so that it is free of taxes.
Eligible loans include:
- All federal student loans and federal parent loans, including direct loans, FFEL program loans (regardless of whether they are held by the U.S. Department of Education or commercial lenders), Perkins federal loans, and federal consolidation loans
- All state educational loan programs
- Institutional loans granted by a university or university
- Private student loans and private matrix loans
Loans must have been contracted, insured, 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 providers. Loans must have been granted “expressly for post-secondary educational expenses, regardless of whether they are provided through the educational institution or directly to the borrower.”
Most student loan forgiveness programs were already tax-exempt. This includes:
- Forgiveness for working in a particular occupation, such as public service loan forgiveness, teacher loan forgiveness, some loan forgiveness programs for doctors and nurses, and various forgiveness programs for Perkins federal loans.
- Registration for death and disability in federal and private student loans
- Closed high school
- Fake certification downloads
- Unpaid return downloads
The main difference is that now the remaining debt forgiveness after 20 or 25 years in an income-based repayment plan will be tax-free. Only borrowers of income contingent return plans will be able to obtain forgiveness before the tax-free state expires at the end of 2025. This will benefit several hundred thousand borrowers, most of whom live below the poverty line for decades. .
President Biden’s $ 10,000 student loan forgiveness proposal will qualify for tax-free treatment.