6 takeaways for student loan borrowers



On Wednesday, the House of Representatives of Congress finally approved President Biden’s $ 1.9 trillion stimulus bill, dubbed the American Rescue Plan. This law is one of the most ambitious economic recovery plans in the history of the country.

The bill was first passed by the House of Representatives last month, then amended and passed by the Senate last weekend. Today’s vote in the House of Representatives was the latest step in the legislative process to approve the Senate version of the bill. Biden is expected to sign the law on Friday.

The package’s largest provisions include $ 1,400 direct payments in respect of taxpayer income of less than $ 75,000 per year (or $ 150,000 for married couples), extended federal unemployment benefits of $ 300 per week through September, 170 US $ 100 billion to start schools, US $ 100 billion to expand vaccine distribution, and an Extended Per Child Tax Credit that can provide financial support of up to $ 3,600 per child.

The bill will also benefit millions student loan borrowers, although this does not meet the expectations of some proponents of student loans. Here’s a breakdown of what incentive law does – and doesn’t do – for student loan borrowers.

No Forgiveness on New Student Loan

President Biden’s latest stimulus package does not include student loan forgiveness. Ultimately, this was not surprising as Biden did not call for student loan forgiveness to be included in his initial proposed economic aid package. There has been some speculation that in the process of approving the amendments to the stimulus package as it passed through Congress, student loan forgiveness could have been included. But in the end, this did not happen.

Instead, the Biden administration argued that the White House would push Congress to pass a separate student loan forgiveness law in the coming months. He expressed support for the forgiveness of $ 10,000 student loans, but recently came out against $ 50,000 in the student loan forgiveness proposed by Democratic lawmakers and student loan borrower activists. The White House also instructed the Justice Department to verify the legality of writing off student debt through the executive branch without congressional involvement, although Biden expressed skepticism that he has the power to unilaterally cancel student debt.

Meanwhile, in one of his first acts in office, Biden issued an executive order extending the current pause for most payments, interest and fees on federal student loans until September 30, 2021.

Temporary Tax Credit for Student Loan Forgiveness

A small reserve included in an incentive package can have significant benefits for student loan borrowers. This position exempt from taxation all forgiven student loans until January 1, 2026. The exception is broad and includes government federal student loans, government guaranteed FFEL student loans, and private student loans

Debt cancellation, including student loan debt, is often a taxable event for a borrower. Congress has made some exceptions, such as the forgiveness of government service loans and disability layoffs. But in other cases, debt cancellation can leave the borrower with significant (and sometimes unaffordable) tax liabilities, which reduces the financial benefits. This could have significant future benefits for a student loan borrowers with income-oriented repayment plan

Senate Progressive Democrats, who sponsored the inclusion of this provision in the final bill, suggested that “pave the way“So that President Biden can enforce student debt cancellation without worrying about unbearable tax implications for student loan borrowers.”

Tax Free Incentive Benefits

Some of the most popular provisions in the incentive package include direct payments of $ 1,400 for taxpayers with income less than $ 75,000 per year (or married couples with income less than $ 150,000 per year), extended federal unemployment benefits of $ 300 US per week through September and extended child tax. a loan that can provide financial support up to $ 3,600 per child. A family of four with a combined income of less than $ 150,000 and one unemployed parent can receive a combined benefit of more than $ 10,000 a year.

Most of these benefits will not count as taxable income, which means they should not materially affect the monthly student loan payments for borrowers who pay off their student loans according to an income-driven repayment plan. Direct incentive checks and child tax credits will not count as taxable income. Unemployment benefits are usually taxed, but a last-minute Senate compromise clause lifts federal income tax of up to $ 10,200 in unemployment benefits received during 2020.

Financial support for schools, colleges and students

The stimulus package also provides $ 170 billion to K-12 schools and higher education institutions to cover the costs of opening and helping students. Of this amount, $ 35 billion will go to public colleges and universities, as well as institutions serving minorities, and historically black colleges and universities. Some of this amount could be used to directly fund millions of struggling college students.

Tighter rules for commercial schools

Part of the stimulus package tightens rules for commercial schools, which consumer advocates claim are often subjected to predatory practices. The so-called “90-10 Rule” is a federal regulation that limits the percentage of income a commercial school can receive from federal sources of financial aid to 90%; the remaining 10% of income must come from alternative sources. This prevents these schools from relying solely on federal student income assistance.

However, there is a loophole in the 90-10 rule. Military and Veteran Benefits such as the Military Personnel Bill and the U.S. Department of Defense Assistance Programs do not fall under the 90-10 limit. As a result, some commercial schools have tried to take advantage of this exclusion by selecting veterans and military personnel to recruit.

Senators have included a provision in the stimulus package to close this loophole. Consumer advocacy groups and veterans’ organizations praised this provision as preventing further exploitation of veterans by predatory schools.

Small Business Assistance for Business Owners with Overdue Student Loans

The stimulus package also includes additional funding of $ 7.25 billion for the Payroll Protection Program (PPP), a pandemic relief fund that provides forgiven loans to struggling small businesses. President Biden recently eased restrictions on the Payroll Protection Program, expanding his eligibility. include business owners with defaulted or past due federal student loans… These business owners may have previously been banned from receiving PPP benefits.

Further reading

Incentive Bill Provides Hidden Student Loan Tax Credit

Congress Makes Big Changes to Income-Based Payment Repayment: What Student Loan Borrowers Should Know

Senate Adopts Student Loan Tax Incentive Bill – “Will It Pave the Way” for Student Loan Cancellation?

Here’s everyone who wants Biden to cancel student loan debt (that’s a big list)

Whether Biden cancels student debt will depend on these three things

Could these student loan borrowers be excluded from Biden’s pardon?

Can Biden Cancel Private Student Loans? 3 options


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