Congress has passed a $1.9 trillion stimulus package that includes important provisions concerning student loan cancellation, as well as increased federal regulations on for-profit colleges.
Several different objectives were met by Congressional leaders through the passing of this legislation. One of the biggest goals was to address the tax burden that student loan borrowers face when receiving any portion of their student loan debt forgiven. Up until now, whenever a borrower received forgiveness for any portion of his or her student loan debt, the amount that was forgiven was considered taxable income. Under this legislation, tax forgiveness will be treated as tax free for the next several years.
The tax relief portion of the bill is good through January 2026. Lawmakers believe that this is a good first step in cancelling the estimated $1.5 trillion in federal student loans currently held by nearly 45 million American consumers.
Essentially, these measures are seen as a good first step in accomplishing the goal set by President Biden to cancel $50,000 in student loan debt for all borrowers. Without this tax-free benefit, financial analysts were concerned as to how this forgiven amount would be treated for tax purposes.
Additional financing from the legislation will be distributed directly to both public and private institutions. Colleges and universities that receive these funds are required to spend at least of what is disbursed on emergency grants to students.
Another provision in the relief bill includes a measure closing the 90-10 loophole which governs how GI Bill money is counted by public and private institutions. For years, for-profit schools have been criticized for how they have recruited both active military service members and veterans. Colleges and universities are currently required to receive in at least 10 percent of their revenue from sources other than the federal government. If the institution is not able to meet that requirement, they are barred from receiving some of the $100 billion the federal government issues annually in student aid.
For-profit institutions were taking advantage of a loophole that would otherwise allow them to count money received from service members and veterans as part of that 10 percent and not part of federal funding. Advocates have argued that this loophole caused for-profit institutions to aggressively recruit military service members and veterans in an effort to meet the requirement. As many of these for-profit institutions have ended up shuttering and leaving their students high and dry with no diploma and out money, this included these same service members and veterans who they actively recruited.
Under this new legislation, GI Bill dollars will now be counted as federal money. Due to the pushback lawmakers received from conservative lawmakers, a bipartisan amendment was made to the bill, changing the date for when GI Bill dollars will be counted as federal money to October. Additionally, this change will not occur until the institutions’ 2023 fiscal year.
Controversy aside, this legislation is being heralded as the largest federal effort made thus far to help both students and families who are struggling during this pandemic due to reduced wages and/or lost jobs. Further, the funds will assist colleges and universities who are facing their own struggles, seeing higher expenses and a sharp decline in revenues as a result of the COVID-19 pandemic.
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For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.