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Thursday, May 23, 2024
Student Loan Forgiveness

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Here’s what you need to know about student loan forgiveness in Wisconsin

Residents in all 50 states, including Wisconsin are receiving student loan forgiveness.

Residents in all 50 states, including Wisconsin, are receiving student loan forgiveness through President Joe Biden’s income-driven repayment program, the Saving on a Valuable Education (SAVE) plan. 

Through SAVE, the Biden administration has relieved nearly 2,000 Wisconsinites of $13.8 million, according to a White House press release. More than 277,000 borrowers across the United States will receive debt forgiveness, including 3,940 more people in Wisconsin who are enrolled in income-driven repayment plans. 

Income-driven repayment plans adjust monthly payments on all federal student loans based on a borrower’s income and family size, with the promise of loan forgiveness after an extended period of time.

Since Biden took office in 2021, his administration has approved over $54 billion in debt cancellation for 1.4 million borrowers enrolled in income-driven repayment plans. The total debt relief approved by the Biden Administration includes $2 billion for 44,380 people in Wisconsin, according to White House statistics.

Here’s what you need to know about student loan forgiveness in Wisconsin:

Wisconsinites primarily see relief through SAVE

Across SAVE, income-driven repayment plans, Public Service Loan Forgiveness and Total and Permanent Disability discharge, 44,390 Wisconsinites have received $2.0 billion in debt cancellation.

Additionally, the Biden administration approved $60 million in debt cancellation for 4,790 people

in Wisconsin through SAVE and $736 million in debt cancellation for 15,440 people in Wisconsin through fixes to other income-driven repayment plans.

Around 135,700 borrowers enrolled in the program and 5,790 people in Wisconsin have received $60 million in debt cancellation, per White House data

“The SAVE plan caps undergraduate loan payments at 5% starting in July, prevents balances from growing from unpaid interest and puts borrowers on a faster path to debt relief after at least ten years of payments if they took out low balances of loans,” the White House said in a press release

Initial plan rejected

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In 2021, the Biden administration proposed forgiving $10,000 each in student debt for over 40 million low- and middle-class borrowers. By January 2023, Wisconsin received 465,000 loan forgiveness applications, with 302,0000 sent to loan servicers. 

“I supported the president’s efforts around that, I thought it was a good idea,” Gov. Tony Evers told the Cardinal in January. 

But in July, the conservative-leaning U.S. Supreme Court blocked Biden’s loan forgiveness, ruling it was an overreach of the president’s power that required approval from Congress. 

The Wisconsin Department of Financial Institutions (DFI) Secretary Cheryll Olson-Collins said in a November webinar over 700,000 students are loan borrowers in Wisconsin, totaling $23.2 billion in overall debt. 

The DFI and Department of Agriculture Trade and Consumer Protection developed an online service called Savi to couple with Biden’s SAVE plan. The program provides a free service to all Wisconsin residents striving to pay off their debt.

Wisconsin’s loan tax continues

Under current state law, Wisconsin is one of four states that taxes money returned under federal student loan forgiveness. 

The amount of debt forgiven from an income-driven repayment plan is considered gross income and is taxed, but at a federal level, the amount of debt forgiven is not taxable as modified by the American Rescue Plan Act. 

Wisconsin SB 389, a bill initially introduced on Sept. 11, 2023 by Sen. Howard Markelin, R- Spring Green, and co-sponsored by Rep. Terry Katsma, R-Oostburg, sought to create changes made to the Internal Revenue Code by federal acts including the American Rescue Plan Act of 2021 and the Infrastructure Investment and Jobs Act.

Although Evers said in January he would like to reduce student debt in Wisconsin, he said loan forgiveness is not widely available for Wisconsinites and many are “not aware” of the potential tax on forgiven funds.

“Are they? No. Should they be? Yes. Or at least [should be] minimized,” Evers said when asked if student loans in Wisconsin are being forgiven.

Assembly Speaker Robin Vos, R-Rochester, took a similar stance in November, telling the Cardinal tax exemptions on loans are not “even viable right now, because I don’t think people are getting their loans forgiven.”  

Department of Education clears misconceptions

The U.S. Department of Education told the Cardinal in a March email that residents of all 50 states are eligible for loan forgiveness. 

The department said available loan forgiveness, cancellation and discharge programs include:

  • Closed School Discharge
  • Public Service Loan Forgiveness
  • Teacher Loan Forgiveness
  • Perkins Loan Cancellation and Discharge (includes Teacher Cancellation)
  • Total and Permanent Disability Discharge
  • Discharge Due to Death
  • Discharge in Bankruptcy
  • False Certification of Student Eligibility or Unauthorized Payment Discharge
  • Unpaid Refund Discharge
  • Borrower Defense Discharge
  • Forgery Discharge
  • Loan repayment under an income-driven repayment (IDR) plan

The balance remaining after 25 years of repayment under these programs is forgiven. This forgiveness is taxable because it does not require employment in a particular profession, according to the Education Department.

A borrower is provided a 1099-C tax form when debt is canceled or forgiven, which reports the forgiven amount as taxable income to the IRS and the taxpayer, the department said.

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Ava Menkes

Ava Menkes is the state news editor at The Daily Cardinal. She has covered multiple stories about Wisconsin politics and written in-depth about nurses unions and youth voter turnout. Follow her on Twitter at @AvaMenkes.

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