Student Loan Borrowers Bills are on Hold as Part of a Pandemic-Era Policy
Most student loan borrowers’ bills are on hold as part of a pandemic-era policy. (Photo: GOBankingRates)
It’s an unusual time for student loan borrowers, so their experience with this year’s tax season will also be unusual.
The Biden administration’s plan to cancel up to $20,000 in student debt for tens of millions of Americans has been put on hold until the Supreme Court rules on the legality of the relief policy.
Meanwhile, most student loan borrowers’ bills are on hold as part of a pandemic-era policy.
READ ALSO: How Much is Tax Deductible from Your Student Loan Interest Deduction?
You are unlikely to be able to claim a student loan interest deduction
Before the Covid outbreak, nearly 13 million taxpayers took advantage of the student loan interest deduction, allowing borrowers to deduct up to $2,500 per year in interest payments on private or federal student loans.
The deduction, which reduces your AGI, is “above the line,” meaning you don’t have to itemize your taxes to qualify.
As a result of the U.S. Since March 2020, the Department of Education has allowed most people with federal student loans to pause their monthly bills without interest accruing; however, most student loan borrowers haven’t made a payment on their debt and leading to not being qualified for the deduction, according to higher education expert Mark Kantrowitz.
Suppose you have student loans that were not eligible for the government’s payment pause, such as commercially held Federal Family Education Loans (FFEL) or private student loans. In that case, you may have made interest payments that can be deducted.
Loan forgiveness is unlikely to increase your tax liability
Student loan borrowers should not be hit with a federal tax bill next spring if the Supreme Court allows the administration to carry out its debt relief plan.
That’s because the American Rescue Plan of 2021 made student loan forgiveness tax-free until 2025 — and the law also covers Biden’s forgiveness.
READ ALSO: Continuation of Application for Student Loan Forgiveness: What You Must Know
