Stimulus Plan and Student Debt: What to Expect
Written by Firethorn Wealth Partners
May 13, 2021
President Biden recently signed an additional stimulus package to assist people who continue to suffer from the Coronavirus pandemic. Part of this stimulus package included provisions to extend the pause on federal student loan payments and the collection of interest through the end of September. The income thresholds for the third stimulus check were adjusted higher to $75,000 for single filers, $112,500 for heads of household, and $150,000 for married filing jointly taxpayers. The checks phase out for incomes above these limits. Continue reading to learn more about what to expect with Biden’s stimulus package, the American Rescue Plan Act.
The American Rescue Plan Act includes a section that makes student loan forgiveness tax free through December 31st, 2025. This has important implications because the borrower will not owe any income tax on the amount of student loans forgiven. Typically, any amount of student loan debt that is canceled or forgiven for less than the full amount that you owe is taxable and is included on your tax return. This tax-free option will save many borrowers a substantial amount of money. This could be foreshadowing a widespread student loan forgiveness plan.
Student loan cancelation will not be happening immediately though. Congress may be waiting to implement student loan cancelation so more people will enroll in income-driven repayment plans on their federal student loans. A second reason may be that Congress is waiting on finalized legislation that will ensure student loan borrowers are protected if student loan cancellation is passed.
While most of the conversation around student loan cancellation has been about federal loans, Congress may cancel private student loans as well. Currently, private education loans are included in the tax-free student loan forgiveness status in the American Rescue Plan Act. This is significant since all prior federal stimulus aid was limited to federal loan borrowers.
Legislation will continue to be introduced around student loan cancellation, federal and private. There are still concerns about the amount of student loan forgiveness and who will qualify for that forgiveness.
A few other possible student loan relief measures include forgiving outstanding debt that have had payments made for over 20 years, granting $10,000 of undergraduate or graduate student loan relief for every year of community service, and limiting student loan payments to only 5% of a person’s discretionary income. These are all ideas that Biden proposed during his election campaign.
There are other options for student loan repayment including student loan refinancing, income driven repayment, and public service loan forgiveness. At Firethorn, we are ready to assist in the discovery of your student loan repayment options.