Student Loans and the Biden Student Loan Forgiveness Plan
If you have trouble paying your student loans, you might be able to qualify for a government-sponsored forgiveness program. But the process is not without its critics. Critics have pointed to several drawbacks to the plan, including higher taxes and an income cap. There are even some Republicans who are critical of the plan.
Taxes on forgiven student loans could be higher
If you get your student loans forgiven, be aware of the potential tax implications. Many states follow the federal guidelines for taxing forgiven student loans, while others do not. Arkansas, Florida, Massachusetts, Nevada, Pennsylvania, and Virginia are among the states that do not tax forgiven student loans. Meanwhile, the state of Arkansas is reviewing its state tax laws in order to determine whether to tax the forgiven amounts.
The American Rescue Plan, signed by former Vice President Joe Biden, essentially exempted federal student loan relief from taxation through 2025. But now, states such as Indiana, Mississippi, and North Carolina have proposed that forgiven student loan debt be taxed at the state level. These states could change the law, but it will take a bill from their state legislature.
In recent weeks, the Biden administration has taken a cautious approach to its student loan forgiveness program. The administration is expected to announce a decision in the next couple of weeks. The new plan may set an income cap for the forgiveness of student loans for those earning under a certain threshold. But analysts have argued that higher earners can afford to repay their loans without the need for student loan forgiveness.
To qualify for the Biden administration’s student loan debt forgiveness plan, borrowers must earn under $125,000. The limit is higher for married couples than single individuals, and it does not apply to people earning over $250,000 per year. It will benefit borrowers who live in lower-income areas and who have lower credit scores. It will not affect borrowers who incurred delinquent loans during the student loan pandemic.
Republicans criticize plan
House Republicans are voicing criticism of the Biden student loan plan, which seeks to eliminate debt for student borrowers. The plan was announced on Aug. 24. But there are legal hurdles to the plan, and it could end up in court. One of the hurdles is the question of standing, or whether the debtor has standing to sue.
The plan has been criticized as a debt forgiveness scheme, which Republicans say is just an attempt to get Democratic votes during the midterm elections. The debt forgiveness plan involves the forgiveness of a loan to Taylor Commercial Inc. of $182,200, plus the accrued interest.
Extension of moratorium on payments and interest accrual
The Biden administration has extended a moratorium on payments and interest accrual on federal student loans. The moratorium, which was set to expire at the end of September 2021, pauses payments and interest on all federal student loans, and prevents loan collection efforts. However, there are concerns that it may not last long enough and could result in borrowers falling through the cracks.
President Biden’s decision to extend the moratorium on payments and interest accrual on federal student loans is expected to help many borrowers. The pause, which began in January and ended on August 31st, will give 41 million Americans several more months without incurring interest. The administration says the pause will help 7.5 million people exit the default status on their federal student loans, sparing them from garnishment of their wages, tax refunds, and benefits.
Plan’s impact on future borrowers
The Biden student loans plan will raise the Pell Grant limit by $400 and make the maximum annual limit for Pell Grants $6,895. The plan also expands the Public Service Loan Forgiveness program to nonprofits and the federal state government, and will eliminate interest and principal from federal student loans. However, it’s unclear exactly how this plan will impact future borrowers. In the meantime, borrowers should carefully analyze the plan’s impact before applying for a loan.
While bipartisan support for the Biden student loans plan has been strong, there have also been some criticisms of the plan. Opponents said it was “a slap in the face” to working families. Republicans also claimed that the plan will increase inflation and cost $300 billion over the next decade. On the other hand, Biden’s plan does address long-standing problems with PSLF, a government program that rejected 98% of applications before the Biden administration. The plan reiterates the Department of Education’s announcement that a limited PSLF waiver will be granted for federal student loan debt for borrowers who served in the military or nonprofits for 10 years.