President Joe Biden announced on Aug. 24, 2022 a student debt relief plan that could cut or eliminate the student loan debt of more than 40 million Americans. The plan intends to erase $10,000 in federal student loan debt for individuals with incomes below $125,000 or households that earn less than $250,000. It is important to note that student loans taken out after June 30 will not be included in the relief.
The U.S Department of Education will also provide up to $20,000 in debt cancellation to Pell Grant recipients and total student loan forgiveness through the Public Service Loan Forgiveness (PSLF) program for borrowers employed by nonprofits or the military, as well as federal, state, tribal or local government.
People that are unsure if they have received a Pell Grant as part of their financial aid package should check their account on studentaid.gov or check with their schools financial aid office.
There are still a lot of questions about the people who can have access to the student forgiveness plan. The Department of Education said any of their loans will qualify. The latter means that the borrowers who have a commercially held Federal Family Education Loan (FFEL) could have been excluded from the plan.
Biden’s plan is good news for Taijah Menzies, a SUNY Oswego student majoring in Business Management and Psychology. However, Menzies feels like there are a lot of questions that have not been answered about the plan that make her feel cautious about its real impact on college life.
“While I do say children are our future and we are put on this earth to reproduce, so we should make sure their future is brighter than ours,” Mezies said. “College in America is a multi-million dollar business. What would that mean for private schools? Do professors get paid less now? Free college in such a capitalist country is a fever dream.”
“We’re looking for ways to work with private lenders to make sure commercially held federal student loan borrowers can also benefit from forgiveness,” A spokesperson of the Department said.
Higher education expert Mark Kantrowitz suggests that borrowers should still stay updated on the changes and take all the necessary steps. In addition, The Education Department said it will launch an application by October to help the borrowers identify if they are eligible for the plan by writing their income data.
“Borrowers should apply for forgiveness and be cautiously optimistic,”Kantrowitz said.
The higher education expert encourages borrowers to apply but warns them to be cautious and wait until all the questions get answered. Taxation is one of the questions unsolved at the moment. Student loan forgiveness will not trigger a federal tax bill as the American Rescue Plan of 2021 made the student loan forgiveness tax-free through 2025, according to the White House.
The problem is some States may apply taxes to student loan forgiveness which in words of Kantrowitz, “may be the equivalent of a few student loan payments” making the student loan forgiveness ineffective.
The forgiven debt is seen by some states as income received by a counterpart, which means the beneficiaries of student forgiven debt will see their tax base increased. As a result, borrowers who are still paying down student loans could owe taxes on as much as $10,000 or even $20,000 depending on the amount that was taken off their bill.
According to The Associated Press, some states such as Arkansas, Wisconsin, Mississippi, Minnesota, and North Carolina may see the tax man demanding a cut of the relief of the student loan forgiveness. Depending on the state tax rate, the taxpayers could see their tax base add up to several hundred additional tax dollars even with the deductions and exemptions they are able to claim.
That troubles Hannah Ye, a SUNY Oswego student majoring in Psychology and Business Management. Ye thinks Biden’s plan is a great start but has complaints about the obstacles some states have with the plan.
“I personally think the Biden plan is amazing for us college students despite the increase in taxes we pay, but since we are the future generations, I feel people should invest in us,” Ye said.
If you are unsure about the legislation in your state, the amounts that will be received or the taxes you will probably pay, the best option is to contact a local tax professional for an estimate before filing your state tax return, according to Kantrowitz.
