- ORIGINAL NEWS
What Biden’s new student loan forgiveness plan means for your taxes
- SUMMARY
President Biden’s new student loan forgiveness plan offers up to $20,000 in relief to millions of borrowers.
While forgiveness in 2024 is tax-free, future cancellations may be taxed.
Yet, the extent of these taxes remains uncertain.
If implemented, Biden’s plan would cancel up to $20,000 in unpaid student loan interest.
Certain groups, such as Pell Grant recipients, may receive complete debt cancellation.
The catch is that forgiveness received after 2025 could incur federal taxes.
States’ tax policies on debt forgiveness vary.
Some conform to federal rules, while others may impose taxes on forgiven balances.
It’s crucial to consult state regulations before relying on federal tax exemption.
Experts emphasize the potential tax liability for borrowers receiving forgiveness after 2025.
For example, a $50,000 forgiveness in the 22% tax bracket could translate to an $11,000 tax bill.
These taxes may increase as tax brackets rise after 2025.
Additionally, taxable forgiveness may trigger other tax consequences, such as reducing eligibility for other tax breaks.
It’s important for borrowers to consider these implications and plan accordingly.
- NEWS SENTIMENT CHECK
- Overall sentiment:
neutral
Positive
“President Joe Biden on Monday unveiled a new student loan forgiveness plan that could provide up to $20,000 in interest relief and debt cancellation for certain groups.”
“Biden’s proposal to cancel student loan interest could reduce balances.”
Negative
“While forgiveness before 2026 won’t trigger a federal tax bill, borrowers could owe taxes on future debt cancellation, experts say.”
“Depending on your situation, higher income from taxable student loan forgiveness could cause ‘a chain of [tax] consequences,’ such as phaseouts for other tax breaks, Lucas said.”