At the behest of President Biden, the Department of Education is extending the hiatus on payments and collections of federal student loans, and keeping the interest rate on loans at 0%, until the end of September 2021. The new president made the request hours after becoming the 46th President of the United States. It was something he pledged to do on “day one,” and he kept his promise.
The CARES law, which was enacted in March 2020, first suspended student loan payments until September 30, 2020, without penalty or interest on all loans held by the federal government. This covered over 95% of student loan borrowers. Collection activities against borrowers who were already in arrears were also suspended.
At the time, most people thought the coronavirus crisis would be behind us by September 30. However, as the pandemic dragged on and worsened, the student loan relief provisions of the CARES Act were repeatedly extended. The latest extension suspended student loan payments until January 31, 2021. But as that date approached, people with student loan debt worried that payment requirements and interest would start again as the pandemic hit. still raging. President Biden’s action allays those fears – at least until the end of September.
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The next big question for the Biden administration is whether to push for – or how much to push for – student loan cancellation. Although not included in President Biden’s $ 1.9 trillion “American bailout” economic package, new president backs student debt cancellation plan of $ 10,000 or more supported by the federal government for every American (private student debt is unlikely to be eligible for forgiveness). Some progressives want more student loan debt cancellation – up to $ 50,000 per person. However, we don’t expect Biden to approve of anything near that level. He has promised to release a second economic plan in February, and the student loan cancellation could be part of that package.
President Biden has also said that canceled student loan debt should not be subject to tax. Normally, the amount of any debt canceled, canceled, or paid for less than the total amount you owe is taxable and should be reported on your tax return. There are a number of exceptions to this general rule, but in most cases canceled student loans currently result in a higher tax bill. Expect any Biden plan to include an additional exception for any student loan debt it is able to write off.
As a presidential candidate, Biden also presented a plan that would reduce or eliminate student loan debt by:
- Limit student loan repayments to 5% of a person’s discretionary income (income minus taxes and essential expenses like accommodation and food) greater than $ 25,000;
- Forgive student loan debt for people who have made payments for 20 years;
- Provide $ 10,000 in undergraduate and graduate student loan relief for each year of national or community service, up to five years; and
- Allow the release of private student loans in bankruptcy.
President Biden’s pre-election plan would also provide two years of community college or other high-quality debt-free training program. The federal government would pay 75% of the cost and the states would cover the rest (the federal government would cover up to 95% of the cost for Indian tribes operating community colleges serving low-income students). Biden also called for making public colleges and universities free to all families with incomes below $ 125,000.
In addition to canceling student loans, some of these ideas could feature in the second economic growth plan that the president will release in February.
And there’s more student loan relief that’s already on the books. The CARES Act created a temporary income tax exclusion of up to $ 5,250 on student loan debt paid by your employer in 2020. However, the Taxpayer Certainty and Tax Relief in Case Act disaster, which was enacted in December, extended this tax break until 2025. The cap applies to both student loan repayment benefits and other educational assistance (e.g., tuition fees). , fees, books, etc.) offered by your employer.