On Wednesday, President Biden announced that steps would be taken toward addressing the student loan debt, including forgiving up to $20,000 for specific borrowers and extending the payment freeze until the end of the year.
“Education is a ticket to a better life… but over time that ticket has become too expensive for too many Americans,” Biden said in his address at the White House. Student loan forgiveness was a key issue for Joe Biden during the 2020 campaign trail, where he promised $10,000 of debt relief. Now 2 years into his presidency, this promise seems to have been realized.
According to the plan, borrowers with an income less than $125,000 who hold loans with the Department of Education can get up to $20,000 in loan forgiveness if they’ve obtained Pell Grants. Individuals who make less than $125,000, but did not receive Pell Grants will be eligible for $10,000. In addition, the student loan payment pause, originally set to expire this month, has been extended “a final time” to December 31, 2022.
The plan has already begun receiving criticism from both sides, with many saying that the plan doesn’t address the problem of the rising cost of higher education and interest rates on student loans. “There is no such thing as student loan forgiveness–this is a bailout, paid for by the large majority of Americans who never went to college or who responsibly paid off their debts,” Arkansas Senator Tom Cotton said in a tweet and email to supporters. The biggest concern raised by experts is the plan's effects on inflation. A study produced by Penn Wharton estimates that the plan will leave the government with a $300 billion bill. While it will surely give relief to millions of Americans, that cost will appear somewhere else. When asked about whether the plan is fair to those who don’t have student loan debt, Biden responded “Is it fair to people who in fact do not own multi-billion dollar businesses? You see how these guys get all debt forgiveness. Is that fair? What do you think?” Students can stay up to date on when the application for the plan comes out by subscribing to updates from the Department of Education. Note: The Public Service Loan Forgiveness program is separate from the plan detailed.
Some states proposing a tax on the federal student aid
Kobe Godwin
Only weeks after President Biden’s plan to provide up to $20,000 for student loan borrowers, some states are now organizing a plan to levy state taxes on the one-time relief. Mississippi, North Carolina and Indiana plan to tax the loan forgiveness, while other states such as Wisconsin, West Virginia, Minnesota, California and Arkansas were undecided.
The difference between a state's decision to tax the income comes from the Internal Code Revenue Conformity, the amount that a state's tax code matches with the federal code. Some states adhere to the federal tax code completely, while others pick and choose various parts of the code.
The Arkansas Department of Finance and Administration (DFA) released a statement on the situation, “The forgiveness of a debt is generally included in a taxpayer’s gross income,” and “The Arkansas General Assembly and Governor Asa Hutchison took action to exempt unemployment payments from state income tax for a two year period.”
The DFA offered insight as to when the decision to tax the federal loans would be discussed, “The General Assembly meets in January and may take similar action to exempt this student debt forgiveness.”
Governor Asa Hutchinson released a personal statement on the subject, “Broad student loan ‘forgiveness’ is a misuse of executive authority. Shifting the burden from those who willingly took out a loan to all taxpayers is inconsistent with the American ideal of personal responsibility and will further discourage those who took a different path, including work or lower-cost schools.”
Hutchinson further commented on Biden's plan stating, “If President Biden wanted to provide relief to Americans with student loan debts, he could work to permanently lower interest rates instead of across-the-board forgiveness. ‘Forgiving’ student loan debts will reward high-cost schools and add to the inflated cost of higher education.”
Throughout 2026, the Internal Revenue Service has pledged that it will not count forgiven student loan debt as taxable income. The federal aid is part of a $1.9 trillion stimulus package that was signed into law last year.