College students scored some big wins in President Biden’s $1.9 trillion stimulus package.
The legislation expanded the pool of dependents, including children in college, who are eligible for $1,400 stimulus checks. It also expanded child care credits, which will benefit students who are also parents.
“Putting more money in the hands of struggling students — and their families — could help many stay on track” toward earning a degree, said Anna Helhoski, a student-loan expert with NerdWallet.
The stimulus package also features a less widely publicized but potentially more significant provision that makes student-loan forgiveness free from federal taxation through 2025. While this measure won’t help younger cash-strapped borrowers, some observers say it sends a clear signal that some form of mass student-loan cancellation is coming.
In order to qualify for tax-free forgiveness, federal student-loan borrowers will still need to meet the requirement of 20 or 25 years’ worth of payments.
But for those who do qualify, for example, the average borrower who earns $50,000 in income would save about $2,200 in taxes for every $10,000 of forgiven student loans, according to a joint statement from Democrat Sens. Bob Menendez of New Jersey and Elizabeth Warren of Massachusetts.
Before the latest stimulus package, with some exceptions, any federal student-loan debt that was canceled, forgiven or discharged for less than the amount owed was considered taxable income, leaving borrowers with a large tax bill even after seeing debt wiped out.