COVID tax break could open door to student loan forgiveness

The tax break on college debt cancellations in the COVID-19 relief package signed last week by President Joe Biden has removed a potential roadblock to forgiving student loan debt: taxes .

The provision won’t count any debt forgiven from Dec. 31, 2020, to Jan. 1, 2026, as income. Under one of the existing forgiveness programs (income-driven repayment), the amount forgiven is reported to the IRS as income and taxed according to the borrower’s current tax bracket.

Any debt forgiveness wouldn’t benefit borrowers if it led to an unaffordable tax bill, says Douglas Webber , associate professor of economics at Temple University.

“I see this as one step closer to eliminating what would be not just a big potential downside, but a big public relations problem,” Webber says.

The tax measure was adapted from the Student Loan Tax Relief Act spearheaded by Sens. Bob Menendez, D-N.J., and Elizabeth Warren, D-Mass. On March 6, Warren tweeted , “This clears the way for President Biden to #CancelStudentDebt without burdening student borrowers with thousands of dollars in unexpected taxes.”

Experts say the tax relief measure could do just that.

“Given the context and all the discussions about loan forgiveness, I think it’s likely that this is a nod from Congress to open up this door,” says Megan Coval, vice president of policy and federal relations at National Association of Student Financial Aid Administrators.

Artem Gulish , senior policy strategist at Georgetown University Center on Education and the Workforce, says the relief package was just a start for student loan borrowers.

“This is the first thing the Biden administration is putting through; there is still the potential for forgiveness,” Gulish says.

However, there still isn’t legislation or...