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Looming student loan forgiveness? A provision in the March stimulus bill could set the stage for debt cancellation

April 13, 2021, 9:00 AM UTC

In recent weeks the U.S. Department of Education has announced two rounds of student loan forgiveness, wiping out $1.3 billion held by Americans with permanent disabilities and another $1 billion held by defrauded students.

In the grand scheme of things, those loan forgiveness announcements are relatively small compared with the total $1.7 trillion student loan debt held by borrowers. But broader forgiveness could be on the way: Last week White House Chief of Staff Ron Klain said that President Joe Biden has asked the secretary of education to explore if the executive branch has the legal authority to wipe out as much as $50,000 per borrower in student loan debt.

All these moves on the student loan front have come after the passage of the massive $1.9 trillion economic aid package on March 11. That’s not a coincidence. That bill included a provision to make forgiven student loans nontaxable, which is a bigger deal than it sounds: In the past, student loan forgiveness implemented through the powers of the executive branch left borrowers with a huge tax bill—because the IRS treated forgiven student loans as income.

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That removed barrier to forgiveness hasn’t coincided with Biden publicly supporting broad forgiveness. However, the White House’s request to the Department of Education does suggest some openness to such a move. That memo, Klain said, should arrive this month.

However skepticism remains that Biden would actually go through with forgiveness. “The Biden administration is under intense pressure from the progressive wing of the Democratic coalition to forgive more student debt. But neither the $1 billion in forgiveness under borrower defense to repayment or a new law waiving tax payments on any forgiven student debt in the next five years is a guarantee that more debt will be forgiven,” Robert Kelchen, an associate professor of higher education at Seton Hall University, previously told Fortune.

Even if the Department of Education tells Biden he has the legal power to forgive massive levels of debt, it’s unclear if the President would do so—let alone a full wipeout of $50,000. After all, in February Biden bluntly shot down the idea of $50,000 forgiveness per student, saying, “I will not make that happen.” Instead, Biden has publicly stated he supports Congress passing legislation that forgives $10,000 per student loan borrower.

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