Gomez-Pascrell-Menendez Bill to Make Student Loan Debt Forgiveness Tax-Free Passes Congress
Washington, March 10, 2021
WASHINGTON, D.C. – Today, the House of Representatives passed the American Rescue Plan Act, including legislation introduced by Congressmen Jimmy Gomez (CA-34), Bill Pascrell (NJ-09), and Senator Bob Menendez (D-NJ) that makes any student loan forgiveness tax-free. This transformative legislative package will now head to the White House for President Joe Biden’s signature.
“Student loan debt is a trillion-dollar industry that is crippling graduates of all ages and backgrounds nationwide, especially first-generation students and people of color,” said Congressman Gomez. “This crisis is so severe that it impacts people even decades after graduation, including myself. While my colleagues and I continue to push President Biden to cancel student through executive action, my legislation will be critical in ensuring working Americans aren’t penalized for any potential government relief. With the passage of the American Rescue Plan Act that includes our tax-free student loan forgiveness legislation, we’re one step closer to the reality of broad student loan debt cancellation for millions of Americans.”
Under current law, most student loan forgiveness, including forgiveness through federal income-driven repayment plans, is treated as additional taxable income. This often pushes borrowers into higher tax brackets and leaves them saddled with a crippling tax payment on their forgiven loans.
The Gomez-Pascrell-Menendez bill would exclude the full or partial forgiveness of any college loan between December 31, 2020 and January 1, 2026 from a borrower’s income. This relief applies to public, private, and institutional loans. For example, a family of four that earns $100,000 per year and has $50,000 in college loans forgiven could receive more than $10,000 in federal tax savings under this legislation.
Congressman Gomez is also an original cosponsor of H.Res.100, a resolution calling on President Biden to forgive $50,000 in student loan debt using executive action.
For the complete text of the American Rescue Plan Act, please click here.