Debt is top of mind for graduate students. A Bloomberg Businessweek survey found that among 2018 graduates of prestigious MBA programs, almost half had borrowed at least $100,000 to finance the degree. The American Medical Association has long advocated for legislative action intended to ease the burden of debt on medical providers, and the American Bar Association released a report in 2020 detailing the negative impact of student debt on young lawyers’ mental health and calling for greater legislative advocacy on students’ behalf.
Late last week, when President Biden signed into law a covid relief package, he also removed a critical impediment to enacting broad-based student debt forgiveness. The bill contains a provision that allows any loan cancellation acquired between December 31, 2020 and January 1, 2026 to be excluded from taxable income. Previously, debt forgiveness (including Public Service Loan Forgiveness) was treated as additional income and taxed as such, with few exceptions. This update ensures that recipients of student debt relief are not left with large tax liabilities and are also not thrust into new tax brackets, with associated implications, due to debt cancellation.
The counting of debt forgiveness dollars towards taxable income was a primary obstacle to broad student loan forgiveness programs. With the update now signed into law, Congressional Democrats led by Elizabeth Warren and Chuck Schumer, as well as 17 state attorneys general and consumer rights advocates are calling on President Biden to take executive action to cancel $50,000 in federal student debt per borrower. Despite this pressure, the President does not support loan forgiveness at this amount for every borrower, which he directly expressed in a CNN Town Hall last month, as it would aid people who attended elite schools or obtained professional graduate degrees and have strong repayment prospects. The Biden Administration has noted that cancelling student loans above $10,000 should be dependent on the type of loan and current income of the recipient. The President does, however, support $10,000 in blanket, federal student loan forgiveness, and he has urged Congress to legislate this action. Legislative action, he argues, will make it harder to undo. Meanwhile, he has ordered a Department of Justice review to clarify if he has the authority to cancel student loan debt via executive action. This review will be done with the White House Domestic Policy Cancel, who will also consider the best way to target loan cancellation.
While the loan forgiveness policies under consideration would not directly benefit borrowers with private or commercially held student loans, those borrowers could still benefit from the tax relief provision included in the covid relief bill. Marketwatch notes that it may help borrowers benefit from current loan relief options provided by public or private lenders as a response to the pandemic.
In an interview on student debt with the AMA, Alex Macielak, who works in student-loan refinancing, urged students to pay attention to the political discourse, “There’s a new administration. Student-loan debt is a hot topic, ... There’s been talk about forgiving loans for some people. However, how much, who would be eligible, and other important details are still in doubt. So, monitor the legislation and debate, because student loans are consistently evolving.”