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Published: Mar 11, 2021 7 min read
Senator Elizabeth Warren holds a news conference
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Slipped into the more than 600-page stimulus package is a brief clause that helps lay the groundwork for student loan forgiveness.

The clause, included in the $1.9 trillion bill that President Joe Biden signed into law on Thursday, ensures that student loan borrowers who see their debts wiped out in the next five years aren’t saddled with a massive tax bill. Advocates for universal student debt forgiveness cheered the amendment, while Sen. Elizabeth Warren, a co-sponsor of the provision, said in a statement that it “clears the way for President Biden to use his authority to cancel...student debt.”

Under current law, when the federal government cancels debt, it's considered income that can be taxed, unless the law explicitly exempts it. So with this change, if the administration or Congress cancels any student debt in the near future, the effect of the cancellation will be more powerful because recipients will get the full benefit, instead of the benefit minus taxes.

The change would save a student loan borrower earning $50,000 about $2,200 for every $10,000 of forgiven student loans, according to a press release from Sen. Bob Menendez, a Democrat from New Jersey. In addition to a one-time debt cancellation, the change also applies to any borrower who qualifies for forgiveness via an income-driven repayment plan before the end of 2025.

How the tax change helps the push for student loan cancellation