{"id":185,"date":"2022-09-20T09:04:31","date_gmt":"2022-09-20T07:04:31","guid":{"rendered":"https:\/\/oxfordwisefinance.com\/blog\/?p=185"},"modified":"2022-09-20T13:59:27","modified_gmt":"2022-09-20T11:59:27","slug":"what-president-bidens-trainee-loan-forgiveness-program-way-for-your-taxes","status":"publish","type":"post","link":"https:\/\/oxfordwisefinance.com\/blog\/what-president-bidens-trainee-loan-forgiveness-program-way-for-your-taxes\/","title":{"rendered":"What President Biden’s Student Loan Forgiveness Program Way for Your Taxes"},"content":{"rendered":"

In August, President Biden made a long-awaited announcement: The federal government would forgive up to <\/span>$10,000 of student loan<\/a> debt<\/span> for low- to middle-income borrowers. Borrowers that had received Pell Grants could be eligible for even more assistance.\u00a0<\/span><\/p>\n

But after the initial excitement wore off, many people wondered if they\u2019d face a hefty tax bill due to this new measure.\u00a0<\/span><\/p>\n

Although new laws were implemented that excluded student loan forgiveness from taxable income at the federal level, the student loan tax rules can vary by state. Continue reading to find out how you may be affected by the student loan forgiveness program.\u00a0\u00a0<\/span><\/p>\n

President Biden\u2019s Student Loan Forgiveness Program<\/span><\/h2>\n

Although loan forgiveness was available to some borrowers with federal student loans previously, only a tiny percentage of borrowers qualified. Federal programs like Public Service Loan Forgiveness (<\/span>PSLF<\/span>) and Teacher Loan Forgiveness were limited to a small segment working in education or public service; those that worked for for-profit corporations weren\u2019t eligible.\u00a0<\/span><\/p>\n

By contrast, the <\/span>new loan forgiveness program announced by the Biden Administration<\/span> is available to all borrowers with federal Direct student loans<\/a>.\u00a0<\/span><\/p>\n

Under the program, borrowers can qualify for up to $10,000 in student loan<\/a> forgiveness. If the borrower has received a Pell Grant, they are eligible for up to $20,000 in loan forgiveness<\/a>.\u00a0<\/span><\/p>\n

Borrowers are eligible for the program if their incomes are under $125,000 ($250,000 for married couples).\u00a0<\/span><\/p>\n

Additionally, the federal payment freeze was extended again. Payments are paused through December 31, 2022, and interest remains at 0%.\u00a0<\/span><\/p>\n

How Does Loan Forgiveness Affect Taxpayers?\u00a0<\/span><\/h2>\n

Although President Biden\u201ds announcement provided some relief to federal student loan borrowers, many people are worried about how it will affect their taxes.\u00a0<\/span><\/p>\n

In the past, the IRA considered forgiven student loans to be taxable as income<\/a>. For example, if you earned $40,000 per year and qualified for $10,000 of loan forgiveness, the IRS would view your taxable income as $50,000.\u00a0<\/span><\/p>\n

However, there have been some changes, so you may not have to worry about taxes on your loan forgiveness.\u00a0<\/span><\/p>\n

Federal<\/span><\/h3>\n

Previously, all forms of loan forgiveness other than PSLF were taxable as income at the federal level. However, the Biden Administration passed the American Rescue Plan, which changed that rule through 2025.<\/span><\/p>\n

Under the American Rescue Plan, loan forgiveness is not taxable as income on federal income taxes. You don\u2019t have to worry about federal income taxes if you are eligible for $10,000 or even $20,000 under the new loan forgiveness program.\u00a0<\/span><\/p>\n

State<\/span><\/h3>\n

Although federal income tax isn\u2019t an issue with loan<\/a> forgiveness; the forgiven amount may be taxable as income at the state level.<\/span><\/p>\n

Not all states with income taxes consider loan<\/a> forgiveness to be taxable; many states have amended their laws to make loan forgiveness exempt from taxation. According to the <\/span>Tax Foundation<\/span>, a non-profit organization focused on tax policy, and there are currently seven states that will tax student loan forgiveness:\u00a0<\/span><\/p>\n