LOS ANGELES — The American Rescue Plan that the White House is touting across the nation in their “Help is Here” tour includes a provision to make any federal student loan forgiveness tax-free through 2025.

This legislation was spearheaded by Los Angeles Democrat Representative Jimmy Gomez and New Jersey Rep. Bill Pascrell and would ensure any potential federal loan forgiveness issued by Congress, or the president, would not have any taxes tacked onto it — meaning no surprise tax bills for Americans if debts were canceled.

What You Need To Know

  • The COVID-19 aid plan includes a provision to make any federal student loan forgiveness tax-free through 2025

  • This means no surprise tax bills for Americans if student loan debts were to be cancelled

  • Rep. Jimmy Gomez says the growing industry “cripples graduates”, especially first-generation students and people of color

  • The Biden administration is reviewing how the president could address student loans with executive authority

Gomez pointed to how student loan debt is a trillion-dollar industry that continues to grow and in turn "cripples graduates," especially first-generation students and people of color.

“As someone who owes $45,000 in student loan debt from my time in graduate school in 2003, and I’m still working to pay it off, student loan cancellation is a big issue,” Gomez said.

Sen. Elizabeth Warren, D-MA, among others, sponsored the Senate version of this bill. Warren said this provision that is now law in the pandemic aid plan paves “the way to cancel $50,000 in student loan debt.”

She added that wiping out loan debt can help stimulate the economy and help minority Americans who may be disproportionately hurt by the debt crisis and pandemic. Warren and Gomez said now is the right time to make student loan forgiveness a reality.

“I’ve heard stories that people in my district, somebody owes $209,000, somebody else owes about $175,000,” Gomez said. “I had a forum on this issue, and it’s one of the main issues because it prevents people from being able to save money, to buy a home, to start a family, to really kick start their future. So I’m proud that this bill, what it does, is it says that if there is any loan forgiveness, it’s going to be tax-free, because before this bill, anybody who got any cancellation would be taxed as income. So it would actually, you would be helping them on one hand and punishing on the other hand.”

President Biden has expressed support for forgiving $10,000 worth in loans, although he wants it to happen with bipartisan support in Congress — even though this issue lacks any Republican support. Because of that lack of GOP support, Warren said Biden should use his executive authority to forgive billions of dollars worth of student debt. The administration said they are reviewing what power the president could use on this issue.

With executive orders and actions, the president is not generally able to make new laws or policies. But there may be a way the president could address student loans through a vague congressional provision into the Higher Education Act that gives the Secretary of Education some authority to grant relief to student debtors, but to what extent isn’t clear. Therefore, if the president decided to sign an order that would cost the U.S. Treasury billions of dollars, it would almost certainly be challenged in court.

But Democrats are holding out hope saying critics can no longer point to a potential tax burden on student loan forgiveness and said many reeling from the debt crisis and pandemic would benefit from loan forgiveness.