Following last week’s announcement of newly certified qualified borrowers, the Biden administration has now granted at least $16 billion in student loan forgiveness, according to the Department of Education.
The $16 billion in student loan cancellations granted so far represents Biden’s “targeted” strategy to eliminate student debt. Officials are attempting to make current student loan forgiveness programs more accessible by loosening program conditions, speeding up approvals, and extending the pool of eligible borrowers.
Under the Total and Permanent Disability (TPD) discharge program, the government has granted $7.8 billion in federal student loan cancellation for more than 400,000 disabled students. According to Forbes, the Education Department’s TPD discharge efforts provide automatic releases for some borrowers obtaining Social Security Disability benefits.
Thousands of previously dismissed federal student loans were also reinstated under the TPD discharge program after some borrowers failed to return documentation linked to post-discharge income monitoring, which had been a trademark of the program for years. While it works to revise the underlying regulations, the Department has temporarily halted post-discharge TPD income monitoring.
Do you need to pay taxes for student loans?
In March 2021, the federal government passed the American Rescue Plan Act in response to the worsening financial catastrophe brought on by the COVID-19 pandemic.
Among the act’s numerous features aimed at boosting the economy, forgiven student loans were temporarily excluded from gross income for tax reasons. That means you won’t have to pay federal income tax on any forgiven federal or private student loan between Dec. 31, 2020, and Jan. 1, 2026, as per Fox Business.
Remember that if your state has its own income tax, forgiven student loan debt may be treated differently. Only the federal Internal Revenue Code is covered by the act’s provisions. However, for their own tax codes, several states prefer to follow federal tax standards. Consult a knowledgeable tax professional if you’re uncertain about your state tax liability.