Student loan forgiveness

[whatchamacallit]

https://www.cnn.com/2022/08/24/politics ... index.html

A one-time cancellation of $10,000 for each borrower earning up to $125,000 a year could cost the government nearly $300 billion, according to an estimate from the Penn Wharton Budget Model. Additional forgiveness for Pell grant recipients was not included in the estimate.

Is this just some kind of gimmick that isn't really giving away $10,000 to all these people?

Why not just give every citizen $10,000 and tax it at their income bracket to make it fair?

[vnatale]

Aside from the fact that this is likely unconstitutional, it is grossly unfair to everyone who:
-didn't go to college, or
-went to college, but already paid off their loans.

Of course, the left doesn't care. This is likely another gimmick to buy votes to try and save the disaster that is coming for them this November.

Things like this is why I could never be a member of any party. I'm an ultra fiscal conservative.

I think I've heard that the majority of student debt is for people with professional degrees, e.g., lawyers.

87% don't have student debt while 13% do.

I could go on and on. Would be curious if anyone in this forum supports it.

[vnatale]

https://www.wsj.com/articles/bidens-stu ... 0?mod=e2tw


MARKETSPERSONAL FINANCE
Biden’s Student Loan Forgiveness Plan: What to Know
What the president’s plan means for the millions of Americans with student debt

[vnatale]

https://www.wsj.com/articles/the-half-t ... ?mod=e2two

OPINIONREVIEW & OUTLOOK
The Half-Trillion-Dollar Student-Loan Executive Coup
Biden’s student-loan write-off is an abuse of power that favors college grads at the expense of plumbers and FedEx drivers.
By The Editorial BoardFollow
Aug. 24, 2022 6:53 pm ET

[joypog]

Just popping in to say I disagree with the policy but I grok why someone might want to give a handout to his favorite supporters....though my feeling is that the Dem's should be reaching out to the 64% of americans who didn't go to college not the ones who are already going to vote for them. Then again those fools can't politik themselves out a paper bag.

What really bothers me is the process.

We need less imperial presidency bullshit, not more....but we have a bipartisan consensus on that trendline. Not sure how we turn that around.

[boglerdude]

UBI debit cards incoming. No cash back. Simply report misinformation spread by far-right conservatives to keep your account in good standing.

[vnatale]

Would it not have been far more egalitarian and far reaching to forgive $5,000 of car debt?

[Xan]

Yeah, I don't think there will be a lot of fans of this on this forum.

Government giveaways are par for the course, unfortunately. Look at the annual farm aid that's welfare for large biz. Or the $400 billion in PPP Loan "forgiveness." Or way back in 2008/9, when we rewarded irresponsible big banks with a $trillion + bailout.

This isn't the worst "forgiveness," but it's not good.

The bank bailout is what spawned the Tea Party.

Of course as with most such forgiveness, this will only make the problem worse. The real problem with the price of education is easy government money which the universities help themselves to with students as the middlemen.

The PPP loan forgiveness was more about federal aid to employees who would otherwise have lost their jobs during the pandemic. At least in theory, it's mostly a wash for business owners.

[vnatale]

Would it not have been far more egalitarian and far reaching to forgive $5,000 of car debt?

But I have no car debt. See how that works? Similarly, I didn't hold subprime mortgage debt in 2008, so didn't get in on that cash train. Giveaways are always unfair. For that matter, state funding of Universities is unfair to people who don't go to college.

I understand. The only debt I have ever had in my life was my student loan debt for less than a decade.

My point was that if we agreed that people needed assistance on their debt so as to be more productive than it'd reach more people to forgive car debt rather than student debt. The latter are more among the elite while the former would decidedly be not.

[vnatale]

I have an idea:
If you can't afford to pay a loan back, don't take one out.
But I guess if you're dumb enough to major in something like gender studies, you're also too dumb not to take out a loan you can't repay.

By that definition that would include a certain ex-president who declared multiple bankruptcies presumably because he could not repay debt he / the business incurred?

[whatchamacallit]

Is this maybe just a gimmicky way of actually just forgiving all the interest that would have accumulated on these loans over the last two years?

People with high loan balances will have 10k knocked off their balance but are about to have to start paying up in January.

I don't know much about student loans but I wonder if some are adjusting rate. If so, that would help in covering this cost in a hurry.

[Xan]

Is this maybe just a gimmicky way of actually just forgiving all the interest that would have accumulated on these loans over the last two years?

People with high loan balances will have 10k knocked off their balance but are about to have to start paying up in January.

I don't know much about student loans but I wonder if some are adjusting rate. If so, that would help in covering this cost in a hurry.

I believe the interest accumulation was also paused.

[Maddy]

Is the federal government actually the creditor in the majority of these cases? To the best of my knowledge, the government "backs" many loans, but don't most of them involve some sort of private investment? And what about strictly private student loans that have no government backing? Are all these creditors supposed to just take the loss? Doesn't the U.S. Constitution say something about impairing the obligation of contracts?

[joypog]

I wonder if the Dem's are daring the GOP to float a lawsuit to make them look like scrooges.

For all the tit for tat over the past couple of years, I think this conspiracy theory might have legs.

And honestly, I'm not sure if this is a winning political issue for the Dems. Their online twitter base, for sure. But the 64% of americans without degrees most likely have some differing opinions about this giveaway....

[Maddy]

The dems will look like scrooges soon enough when those students receive a $3,300 tax bill due on April 15 of next year. I wonder how those students who are unable to make even one monthly payment are going to handle that one. But the midterms will already have passed, so I guess it doesn't matter.

[vnatale]

The dems will look like scrooges soon enough when those students receive a $3,300 tax bill due on April 15 of next year. I wonder how those students who are unable to make even one monthly payment are going to handle that one. But the midterms will already have passed, so I guess it doesn't matter.

The forgiven PPP loans were not considered taxable income. So the same may happen in this case.

[glennds]

The dems will look like scrooges soon enough when those students receive a $3,300 tax bill due on April 15 of next year. I wonder how those students who are unable to make even one monthly payment are going to handle that one. But the midterms will already have passed, so I guess it doesn't matter.

The forgiven PPP loans were not considered taxable income. So the same may happen in this case.

Then how else would you book the cash received in connection with the PPP loan? I assume at the time funds are received pursuant to the loan agreement, the cash would be booked as debt. But upon the date of forgiveness, what becomes of the liability on the balance sheet?

[Xan]

The dems will look like scrooges soon enough when those students receive a $3,300 tax bill due on April 15 of next year. I wonder how those students who are unable to make even one monthly payment are going to handle that one. But the midterms will already have passed, so I guess it doesn't matter.

The forgiven PPP loans were not considered taxable income. So the same may happen in this case.

Then how else would you book the cash received in connection with the PPP loan? I assume at the time funds are received pursuant to the loan agreement, the cash would be booked as debt. But upon the date of forgiveness, what becomes of the liability on the balance sheet?

For tax purposes they weren't considered income.

[glennds]

The dems will look like scrooges soon enough when those students receive a $3,300 tax bill due on April 15 of next year. I wonder how those students who are unable to make even one monthly payment are going to handle that one. But the midterms will already have passed, so I guess it doesn't matter.

The forgiven PPP loans were not considered taxable income. So the same may happen in this case.

Then how else would you book the cash received in connection with the PPP loan? I assume at the time funds are received pursuant to the loan agreement, the cash would be booked as debt. But upon the date of forgiveness, what becomes of the liability on the balance sheet?

For tax purposes they weren't considered income.

You're right. It's a triple win for the business owner. You get tax free cash, no repayment obligation, and any expenses incurred with the money are still deductible. For those businesses that were not adversely affected by the pandemic, PPP was manna from heaven. For others that were adversely affected, I'm sure PPP kept them afloat.

[Maddy]

Another, though contrary, precedent: Not all that long ago, the federal government offered a "first time home buyer credit." It was a huge success, but nowhere in the fine print did the government reveal that the credit would be treated as taxable income on the following year's return. There were a lot of people who got blindsided by that.

[vnatale]

The dems will look like scrooges soon enough when those students receive a $3,300 tax bill due on April 15 of next year. I wonder how those students who are unable to make even one monthly payment are going to handle that one. But the midterms will already have passed, so I guess it doesn't matter.

The forgiven PPP loans were not considered taxable income. So the same may happen in this case.

Then how else would you book the cash received in connection with the PPP loan? I assume at the time funds are received pursuant to the loan agreement, the cash would be booked as debt. But upon the date of forgiveness, what becomes of the liability on the balance sheet?

Had to do it for two organizations for which I was their financial person and which had forgiven PPP Loans. The journal entry is:

Debit PPP Loan
Credit PPP Loan Forgiveness

So it becomes an Other Income item on the Profit & Loss Statement.

[vnatale]

The PPP loans were meant to replace lost business income. They may not be taxable to the business, but the funds were certainly taxable to the recipients (assuming it was used to replace payroll to the owner or employees).

OTOH, the student loan forgiveness is basically a gift so I'm not sure how they would rationalize not taxing it. But then again, the socialists who are in favor of policies like this don't use logic when making decisions, so who knows how it will work.

Fairly early the federal government made it clear that the forgiven loans would not be taxable income to the business. However, until the last minute this was not going to be the case for Masssachusetts taxation purposes. I'm forgetting now but it was either the loan forgiveness was going to be taxed or the expenses used to get it forgiven would not be allowed to be deducted.

It was so last minute for 202 that once the ruling was made I got some tax planning things done with only a few hours to spare now that we knew the way Massachusetts was going to handle the tax forgiveness.

Both federal and Massachusetts made it clear that it was going to be the same tax treatment much earlier for 2021 loans forgiven.

Generally, "gifts" are not considered income. If I give you a gift no tax consequence to you. But if I give you a "gift" which is really some form of compensation then that is taxed.

The student loan forgiveness could go either way. It will go the way the law gets written as to whether or not it will be taxed.

[vnatale]

And, here is our definitive answer:

https://www.cnet.com/personal-finance/t ... next-year/


Will you owe taxes on your forgiven student loan amount?
A provision tucked into the $1.9 trillion COVID relief package passed in March 2021 eliminates taxation on forgiven student loan debt through 2025. This means you won't owe any additional taxes on your forgiven student loans.

[boglerdude]

> A provision tucked into the $1.9 trillion COVID relief package

Still learning about the things this novel, brand-spankin' new virus can do!

"We now have a president with no regard for the rule of law or its restraints on his arbitrary power to issue fiats, backed by an entire party & commentariat that views "Whatabout Trump" as an all-purpose get-out-of-law-free card." via https://twitter.com/baseballcrank/statu ... 0270764032

"To all my college-educated friends who will almost inevitably have their debt-relief hopes crushed in a 6-3 Supreme Court decision handed down along party lines, I bring good news about Congress’s power to add seats to the Court." via https://twitter.com/imillhiser/status/1 ... 0840318976

[glennds]

The dems will look like scrooges soon enough when those students receive a $3,300 tax bill due on April 15 of next year. I wonder how those students who are unable to make even one monthly payment are going to handle that one. But the midterms will already have passed, so I guess it doesn't matter.

The forgiven PPP loans were not considered taxable income. So the same may happen in this case.

Then how else would you book the cash received in connection with the PPP loan? I assume at the time funds are received pursuant to the loan agreement, the cash would be booked as debt. But upon the date of forgiveness, what becomes of the liability on the balance sheet?

Had to do it for two organizations for which I was their financial person and which had forgiven PPP Loans. The journal entry is:

Debit PPP Loan
Credit PPP Loan Forgiveness

So it becomes an Other Income item on the Profit & Loss Statement.

Thanks Vinny,
I looked up the reporting and I see the taxpayer has to report the tax exempt forgiven PPP loan amount in the period it was forgiven (or accrued) through a simple taxpayer statement attachment.