"On Monday, Sen. Elizabeth Warren led a group of her Democratic colleagues in sending a letter to Treasury Secretary Scott Bessent, exclusively viewed by Business Insider, calling on him to use his authority to prevent a "tax bomb" from hitting student-loan borrowers next year. The lawmakers are referring to a 2021 provision in the American Rescue plan that made student-loan forgiveness tax-free, and the provision is set to expire in January 2026."
"It means that borrowers who complete their payments on income-driven repayment plans in 2026 could face thousands of dollars in new taxes due to the expiration of the provision. An analysis by advocacy group Protect Borrowers said borrowers who receive the average amount of debt canceled under income-driven repayment plans could face losses between $5,800 and around $10,000. It would be a "financial disaster for working-class Americans," the letter said."
"The lawmakers outlined several legal authorities they said the administration could use to prevent new tax bills on student-debt relief. One authority the lawmakers referenced is a general welfare exclusion; they said that income-driven repayment plans, by nature, suggest a borrower's demonstrated need since payments are based on income, and loan forgiveness would promote the borrower's general welfare."
Student-loan forgiveness made tax-free by a 2021 American Rescue Plan provision is scheduled to expire in January 2026. Lawmakers led by Sen. Elizabeth Warren urged Treasury Secretary Scott Bessent to use administrative authority to prevent resulting tax liabilities for borrowers. Borrowers who finish income-driven repayment plans in 2026 could face thousands in taxes, with Protect Borrowers estimating average losses between $5,800 and $10,000. Lawmakers warned that large tax bills would undermine the purpose of income-driven repayment programs. Lawmakers cited legal authorities, including a general welfare exclusion, that could be used to avert the tax consequences.
Read at Business Insider
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