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Biden Administration Cancels Student Debt For 200K "Defrauded" Borrowers

by
Rebekah Barton
on
6/22/2022
Biden Administration Cancels Student Debt For 200K "Defrauded" Borrowers

Today, June 23, 2022, it was confirmed that the Biden administration has agreed to cancel student debt for approximately 200,000 borrowers who claim they were "defrauded."

Per a Politico report about the groundbreaking legislation:

The agreement, which could wipe out more than $6 billion of student loan debt, was reached as part of a proposed class-action settlement filed in federal court Wednesday evening [June 22, 2022].

The proposed settlement is a possible ending chapter to a long-running lawsuit challenging the Education Department’s handling of the “borrower defense” law, which entitles federal loan borrowers to debt relief when their college misleads them or otherwise defrauds them.

It is important to note that the federal student loans involved in this proposed forgiveness plan belong to borrowers whose "applications for relief have languished at the Education Department for years."

Whether or not you're among the borrowers who could be impacted by this round of student loan forgiveness, you might be wondering if forgiven student loan debt is taxable -- this is a great question that does not, unfortunately, have a clear cut answer. 

Forbes recently broke down whether or not student loan forgiveness is taxable in 2022, noting that "it's complicated."

The outlet noted:

As a general rule, whenever a debt of any kind — including a student loan — is reduced or cancelled, the debtor or borrower may incur taxes. The lender would issue the debtor a Form 1099-C during tax season for the year in which the debt was cancelled, which would show the exact amount of loan forgiveness or debt cancellation. The debtor may then have to report that amount on their tax return as “income.” In other words, the amount of the cancelled debt could be treated as if the borrower “earned” that sum in income during the prior tax year, resulting in additional income taxes. For large forgiven balances, this can potentially result in a hefty tax bill.

In certain situations, however, borrowers may be exempt from paying taxes on the canceled student loan debt. If, for instance, "if the debt is invalid or disputed, or if the borrower was insolvent at the time that the debt was cancelled (meaning the value of their total debts exceeded the value of their total assets)," tax liability may be avoided. 

In the case of the loan recipients who claim to have been defrauded, there may be an option to avoid paying taxes since the debt has been disputed. 

Before you file taxes -- whether you not any of your student loans have been forgiven -- it is important to speak to a qualified tax professional to make sure you are not missing any deductions. 

Use the trusted TaxBuzz directory, which features approximately 50,000 tax and accounting experts, to find a local CPA who specializes in helping taxpayers just like you.

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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