President Biden, Vice President Harris, and the U.S. Department of Education developed a three-part plan to help federal student loan borrowers transition back to making regular payments post-pandemic. As a part of this plan, the Administration introduced the Biden-Harris Student Debt Relief Plan in August, which would forgive a certain dollar amount of student loan debt for qualifying borrowers. There have been several updates to the plan since its introduction, which we will share with you today.
Currently, the Student Debt Relief Plan has been blocked by multiple lawsuits. The plan is currently blocked pending a ruling in the Supreme Court which will hear oral arguments regarding the plan in February 2023 with a decision expected by June 2023. In the meantime, the Department of Education has extended the pandemic-era pause on federal student loan repayments until 60 days after the Department is permitted to implement the program or the litigation is resolved. If the program is not implemented and the litigation has not been resolved by June 30, 2023, payments will resume 60 days after that.
Those who have already submitted applications for the program will receive communication from the Department of Education about whether the application qualifies, if the program is implemented. Until the final ruling is delivered by the courts, applications are closed.
If the program is implemented, eligible borrowers that fall below income levels of $125,000 for individuals and $250,000 for married couples or heads of households could receive the following:
- Up to $20,000 of student debt cancellation for Pell Grant recipients
- Up to $10,000 of student debt cancellation for most other non-Pell Grant recipients
Private student loans, those issued by a bank, credit union, state agency, or school are not covered under this plan. Any forgiven debt under this plan would be tax-free on your federal tax return. Typically, forgiven debt must be included on your tax return as income. However, in the case of federal student loan forgiveness, the Federal government will not tax the forgiven amounts.
However, under current law, the forgiven amount is taxable in Wisconsin as income, so you may be taxed at your regular state income tax rate for the amount of loan forgiveness. Your federal student loan forgiveness balance may increase your tax bill but may not be enough to push you into a higher tax rate – be sure to review the tax brackets or talk with an accountant. If you are a resident of a state other than Wisconsin contact your accountant to determine the taxability of the loan forgiveness in your state.
The situation may change at both the Federal and state levels, so we recommend keeping an eye out for updates from the Department of Education and your state department of revenue. If the Student Debt Relief Plan is implemented, and you carry student loan debt that qualifies for forgiveness, reach out to your accountant to discuss your options and how it may affect your taxes.
*NOTE: This blog only pertains to the Biden-Harris Student Debt Relief Plan. If your loan was forgiven under a different plan, contact your accountant to determine how your taxes may be affected.