Here's how the $1.9 trillion stimulus bill helps college students and graduates
The $ 1.9 trillion stimulus package that the Senate passed on Saturday, and which may be passed this week, contains some important provisions for undergraduate and graduate students.
The greatest benefit for student loan borrowers is a provision that exempts them from paying taxes when they receive forgiveness. It helps those currently in a 20- or 25-year forgiveness program and may pave the way for student loan debt to be paid off later. a big priority for some democratic lawmakers.
Additionally, the plan provides nearly $ 40 billion in support for colleges and universities, while filling a controversial loophole that critics said for-profit colleges have benefited from.
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Here's what to know.
The U.S. Capitol can be seen in Washington, DC in the evening hours on March 5, 2021. The Senate continues to debate the latest COVID-19 relief bill. (Photo by Alex Wong / Getty Images)
Temporary tax exemption for forgiveness
When a student debtor's loans are made, it was previously considered a taxable event. The amount given is considered an "income" and taxed bill based on the borrower's income tax rate. So a borrower with nearly $ 50,000 in debt relief can pay thousands of dollars in taxes to the government.
The Senate's new provision, called the Student Loan Tax Relief Act, was introduced by Senators Elizabeth Warren (D-MA) and Bob Menendez (D-NJ) and specifically addresses this issue: December 2020 debt for student loan awards and January 1st, 2026, that will be tax free. This includes private and institutional loans.
"When student loan borrowers get relief, they will not face thousands of dollars in unexpected taxes," Warren said in a statement.
The tax-free exemption already applies to borrowers participating in the public loan program.
"Make it easier to make it permanent"
There are two reasons for this: First, the tax-free exemption is affecting millions of borrowers as they approach the ultimate goal of income-driven repayment (IDR) plans that promise forgiveness after 20 or 25 years.
Although the current determination ends in 2026, experts suggest that the determination may become more permanent.
"Cracking the door with a temporary provision like this could very well make it easier to make it permanent later," Betsy Mayotte, president of the Institute for Student Loan Advisor, told Yahoo Finance lawmakers.
(Screenshot of the NCLC and SBPC report)
While only 32 people have received forgiveness to date, based on data obtained from the National Consumer Law Center, the exemption smooths out a potential hurdle as many more borrowers qualify to quit in the next few years.
"This tax regime is critical to ensuring that we can provide relief to student loan borrowers without forcing them to swap one unaffordable debt for another," said Persis Yu of NCLC.
"Clear the way" for President Biden to reduce debt
Second, lawmakers like Warren believe the provision will lay the foundation for Congress or President Biden to achieve broad student debt settlement.
"This change paves the way for President Biden to use his authority to scrape US $ 50,000 in student debt to massively boost our economy, narrow the racial gap, and remove this impossible burden on tens of millions of families." so Warren said.
Democratic lawmakers have pushed for $ 50,000 in student debt to be paid off, but Biden has expressed reluctance through executive action.
Many opponents of rejection claim that forgiveness en masse misses the point and is costly. "Student loan debt relief is very expensive, regressive, and does little or nothing to help new people get into college," Harvard University professor Jason Furman and former economic adviser to former President Barack Obama told Yahoo Finance.
Senate Majority Leader Chuck Schumer (D-NY) speaks during a press conference on student debt outside the U.S. Capitol on February 4, 2021 in Washington, DC. (Photo by Drew Angerer / Getty Images)
Congress has also allocated $ 91 million to the Education Department for liaising with students and borrowers on "financial assistance, economic impact payments, means-tested benefits, unemployment benefits, and tax benefits that students and borrowers may be eligible for are".
College students can expect more help too: nearly $ 40 billion will go to colleges and universities if the president's plan is passed. Half of them are aimed at students.
Finally, the Senate also closed a loophole that critics of nonprofit colleges have long called for by amending the House-approved version of the stimulus bill.
I have long struggled to close the 90/10 gap that incentivizes # 4profit colleges to appeal to veterans and service members. I'm glad the American bailout plan finally makes it.
- Senator Dick Durbin (@SenatorDurbin) March 6, 2021
For-profit colleges were previously subject to a rule that said they couldn't get more than 90% of their income from federal grants. But veterans and active service members of G.I. Department of Defense bills or tuition grants are not included in this figure.
This means that these schools can actually receive up to 100% of federal funding effectively, bypassing the 90% limit by targeting and enrolling veterans and service members. A provision dealing with the bill passed in the Senate says that this loophole will be closed in 2023.
The amended bill is expected to go to the House to be voted on this week, where it is expected to be passed before going to President Biden to sign the bill.
Aarthi is a reporter for Yahoo Finance. She can be reached at firstname.lastname@example.org. Follow her on Twitter @aarthiswami.
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