What does the new student loan forgiveness mean for your taxes? In August 2022, President Biden announced a three-part plan that promises the cancellation of $10,000 in student loan debt for low- and middle-income borrowers. Here are the changes you’ll see this year regarding student loan taxes. Student Loan Forgiveness Isn’t New in the Tax and Finance Worlds There are dozens of ways students and former students can get their student loan debts forgiven, canceled, or discharged. There are also many reasons why a student would seek these solutions to help pay or mitigate their debts: Death or disability Closed school Public service or teacher loan forgiveness Bankruptcy or eligibility for parent borrowers And many more What Does the Latest Student Loan Forgiveness Look Like? According to the White House, the three-part plan introduced in August tasks the Department of Education with the following: Provide targeted debt relief to address the financial harms of the pandemic Make student loans more manageable for current and future borrowers by cutting undergraduate payments in half and fixing the issues within the Public Service Loan Forgiveness program Protect future students and taxpayers by reducing the cost of college and holding schools accountable for price increases If every single eligible borrower claims the relief they are entitled to under this new program, 43 million people will reap the benefits, with about 20 million of these students and former students having the full remainder of their balance canceled. Student Loan Taxes Vary by State Though the American Rescue plan makes student loans tax-free at the federal level through 2025, state income tax eligibility depends on how the states have their current tax codes written in accordance (or not) with the new federal initiatives. Initially, the Tax Foundation estimated that 13 states would likely tax student loan forgiveness transactions. That estimate has …
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