Student Debt Relief is here, but with a catch
President Biden made Student Debt Relief a major priority during his campaign and made an announcement back in April that relief was on the way. Some members of Congress had called for $50,000 in student debt relief, but President Biden said, “I will not make that happen” and that he would only support up to $10,000 in relief. Finally, after months of waiting, President Biden announced his plan in late August to cancel $10,000 of student loan debt for non-Pell Grant recipients provided they make less than $125,000 ($250,000 for married couples) a year. If you received a Pell Grant the plan will cancel up to $20,000 with the same income restrictions. More information about the plan can be found Here.
Because of the American Rescue Plan, this debt relief will not be considered taxable income for federal tax purposes. The American Rescue Plan provides that an individual may exclude from gross income the amount of qualified student loan relief that is cancelled or discharged from 2021 through 2025.
Now for the catch. Some states have already announced that the Student Debt Relief will be taxed for state income taxes. Mississippi, Minnesota, Wisconsin, Massachusetts, Arkansas, Indiana, and North Carolina have already announced that they plan on taxing the Relief funds, with statements that when debt is forgiven it is taxable on your income tax return.
If you are planning on taking advantage of this Debt Relief, you have until December 31, 2023 to apply. Please consult with a tax advisor to see what your state plans on doing concerning Student Debt Relief.
If you have any questions regarding Student Debt Relief, please contact your preparer or the Professionals at the Center for Financial, Legal, and Tax Planning, Inc., at (618) 997-3436.