Today, the Senate is expected to vote on a new Covid relief package. Included in the bill is a provision that would make student loan forgiveness passed between Dec 31, 2020, and Jan 1, 2026, tax-free.
While the bill does not itself include student debt forgiveness, the provision stands out as a potential sign that debt forgiveness is a serious priority on the horizon.
“If the language is as broad as it seems, then it would lay the groundwork for any student loan forgiveness, including President Biden’s $10,000 proposal, to be tax-free,” says higher education expert Mark Kantrowitz. “It would also seem to make forgiveness after 20 or 25 years in an income-driven repayment plan tax-free.”
For instance, if a borrower had $10,000 of student debt forgiven they would not be taxed as if they had earned an additional $10,000 that year.