2020 Democratic presidential candidate Senator Elizabeth Warren has proposed a sweeping student loan forgiveness program that includes a range of cancelation measures. Among those are the elimination of tax on forgiven debt. In this brief post we outline the details and how a financial advisor can explain these to clients if asked. Here are the details of Senator Warren's proposal:
- Canceling $50,000 of student loan debt for all borrowers with household incomes under $100,000
- Canceling significant student loan debt for borrowers with household incomes between $100,000 and $250,000. This works by phasing out $1 in debt cancelation for every $3 in income above $100,000.
- For example, a borrower with household income of $130,000 would receive $40,000 in cancellation, and a borrower with household income of $160,000 would get $30,000 in cancellation.
- No student debt cancellation for borrowers with household income above $250,000.
The Process Would Be Automatic
Warren’s plan calls for automatic cancellation using already available federal data about income and student loan debt.
Private Student Loans Would Be Included
Warren proposes working with private debt holders to include private student loan debt as eligible for cancellation. Finally, her proposal indicates that canceled debt would not be taxed as income.