President Joe Biden signed the American Rescue Plan Act of 2021, otherwise known as the COVID-19 Stimulus Package, on March 11, 2021. This stimulus bill is worth $1.9 trillion, meant to aid the U.S.’s economic recession due to the ongoing global pandemic.
The COVID relief bill includes a provision that makes forgiven student loans tax-free, should Biden or Congress cancel any student loan debt. This provision boosted borrower calls for canceling student debt. Currently, Biden has canceled over $2 billion in student debt for over 100,000 borrowers.
This number may increase due to the bill’s current state. Here is a closer look into the COVID relief bill’s provisions that impact student loans.
The COVID-19 Stimulus Package has enough budget to make forgiven student loans tax-free. Forgiven student loans usually carry a tax bill. However, through the American Rescue Plan, borrowers with discharged student loans through 2025 will not face any tax consequences.
Only Congress has the power to cancel student loans. However, Congress has been pressuring Biden to cancel student loans. Accordingly, Biden has already sought the Department of Education to evaluate his authority as president to cancel student loans.
The legal review would explore Biden’s unilateral authority to cancel student loan debt. This review would also determine who is eligible for student loan cancellation. Additionally, the review would find alternative ways to provide student loan relief without canceling student loans altogether.
Currently, the Biden Administration has canceled $1 billion of student loans for 72,000 borrowers. Biden canceled another $1.3 billion of student loans for 41,000 student loan borrowers who had total and permanent disability.
Although these existing cases of student loan forgiveness make other cases seem likely, Biden has not made any positive indications in his recent addresses that he would cancel more student loans. This lack of official statements does not mean it is not possible. Still, it would be wise to look into your repayment options while student loan cancellation remains unconfirmed.
Student loan repayment remains on pause until September 30, 2021. The COVID-19 Stimulus Package gave student loan borrowers some form of relief through student loan forbearance, essentially pausing payments on federal student loans and leaving them interest-free until the end of September.
Payments and interest rates will continue on October 1, 2021. An extension is still possible, which would grant borrowers, especially those who have disproportionately suffered the global pandemic’s effects, some more time to recover financially.
Education Secretary Miguel Cardona suggested that Biden may extend the pause on student loan payments depending on what the economic data would reveal. There is no final decision on whether the break will extend beyond September, he clarifies. However, experts supporting an extension of student loan forbearance cite that it is necessary both for student loan borrowers and lenders, who need time to adjust amid the pandemic’s effects.
The COVID-19 Stimulus Package has affected student loans by making forgiven student loans through 2025 tax-free and by pausing payments until September 30, 2021. Further student loan cancellation and forbearance extension remain possible, although there is still no final decision on these matters.
Consider looking into your repayment options while student loan cancellation seems unlikely. Finding repayment plans before student loans payments resume will help you prepare if they continue on October 1, 2021. Be sure to keep up with the latest news on the administration’s statements regarding student loans.