WASHINGTON, D.C.
– U.S. Senators Bob Menendez (D-N.J.) and Elizabeth Warren (D-Mass.) applauded
passage of their Student Loan Tax Relief Act as part of the American Rescue
Plan. The provision makes any college loan forgiveness tax-free, ensuring
borrowers whose debt is fully or partially forgiven are not saddled with
thousands of dollars in surprise taxes. The average student borrower who earns
$50,000 in income would save approximately $2,200 in taxes for every $10,000 of
forgiven student loans.
More than 43
million Americans hold a combined $1.6 trillion in federal student loan debt,
with many struggling to make payments even before the current economic crisis
caused them to fall further behind.
“Millions of
Americans were already drowning under a mountain of student loan debt before
getting hit with the economic impact of COVID-19. And when they’re lucky
enough to get some relief, the government shouldn’t then tie a heavy tax anchor
to their financial life line,” said Sen. Menendez. “We now have a
tremendous opportunity to relieve this paralyzing weight and that opportunity
should not be jeopardized by an arbitrary tax bill on unrecognized income. I’m
hopeful this will pave the way for President Biden to provide real debt relief
so many student borrowers need, and give a boost to our economy that benefits
everyone.”
"The
COVID-19 crisis is worsening the massive inequities in our economy and society,
but even before the pandemic the student loan debt crisis was already crushing
millions of Americans,” said Sen. Warren. “Now, when student loan
borrowers get relief, they will not be burdened with thousands of dollars in
unexpected taxes. This change clears the way for President Biden to use his
authority to cancel $50,000 in student debt to provide a massive stimulus to
our economy, help narrow the racial wealth gap, and lift this impossible burden
off of tens of millions of families.”
“Student loan
borrowers desperately need relief—but in addition to reducing the amount
borrowers owe, we’ve also got to make sure that we aren’t saddling them with an
unexpected tax bill if their loans are forgiven,” said Sen. Murray. “Student loan forgiveness should be
tax-free—full stop—and that’s what the American Rescue Plan accomplishes."
The student loan tax relief
legislation paves the way for President Biden to cancel at least $50,000 in
federal student loan debt. It will exclude from income any student loan debt
that is modified or discharged beginning December 31, 2020 until January 1,
2026, including private and institutional loans.
Sens. Menendez
and Warren introduced S496, the Student Loan Tax Relief Act, on Monday March 1,
2021. Under current law, most forms of student loan debt that are forgiven by
the federal government or other entities is considered taxable income under the
Internal Revenue Code. As a result, individuals who receive most forms of
student debt relief could face a large, surprise tax bill or even be bumped
into a higher tax bracket – undermining the goal of student debt relief.
Sens. Menendez and Warren
supported a bicameral resolution calling on the administration to use its authority to cancel up
to $50,000 in student loan debt for federal borrowers.
“Student loan
borrowers are facing a staggering $1.7 trillion of debt. When struggling
borrowers are finally able to get relief, they should not have to trade one
unaffordable government debt for another,” said Persis Yu, director of the National
Consumer Law Center's Student Loan Borrower Assistance project. “This bill
is particularly important for Black and Brown borrowers who struggle with a
greater amount of student loan debt because of the racial wealth gap, so would
face a greater tax penalty. We applaud Senator Menendez for his leadership in
ensuring that student loan borrowers are able to access loan relief without
fear of this unfair tax penalty."
"As America
works to recover from the COVID-19 pandemic, the last thing student loan borrowers
need is a surprise tax bill," said SBPC Executive Director Seth
Frotman. "Thanks to Senator Menendez' leadership, millions of student
loan borrowers are poised to have their debts cleared away tax-free, whether
due to financial distress or because they were defrauded by a predatory
school.”
“We applaud
lawmakers for including this measure for student loan borrowers in President
Biden’s rescue plan,” said Ashley Harrington, Federal Advocacy Director and
Senior Counsel at the Center for Responsible Lending. “This will pave the
way for President Biden to provide real relief to student borrowers without
fearing they’ll receive a huge tax bill they cannot afford. This especially
benefits low-income borrowers and borrowers of color who are disproportionately
burdened by student debt and the negative impacts of the current health and
economic crisis. With this obstacle removed, President Biden should turn toward
providing across-the-board student debt cancellation of $50K per borrower. By
doing so, he would wipe out the debt of 75 percent of federal student loan
borrowers and provide a desperately needed economic boost that will benefit
everyone.”
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