State Taxes May Adversely Affect Black Student Loan Borrowers The Most

Tax law interpretation may end up gouging some student borrowers if President Biden’s proposed relief program moves forward.

According to Bloomberg, a payment of as much as $1,000 in the near term may be a reality for some borrowers as a result of an IRS policy. The issue was brought to light as a result of a Nov. 4 Supreme Court decision in which Justice Amy Coney Barrett declined to block the forgiveness plan after two borrowers had filed suit, claiming the program would result in them paying higher state taxes. This decision raises concerns that this could open the doors for the most vulnerable group of borrowers to pay the most taxes in the future.

“It’s true 56% of Black Americans live in the South,” said Dorothy Brown, the Martin D. Ginsburg Chair in Taxation at Georgetown University Law Center and author of The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — and How We Can Fix It in an interview with Bloomberg. “But of the population whose debt is being forgiven in the South, what’s that racial demographic? That’s what I’d want to know. How many Black borrowers are getting this debt relief and currently living in the South? Are we seeing the Black college grads living someplace else?”

This is yet another challenge to debt-riddled borrowers who can’t afford to make full repayment. It comes as no surprise as student debt currently sits at $1.745 trillion.

Bloomberg also pointed out through Brown’s confirmation, the Pell Grant recipients (to which a large group of Black students are) stand to be the most affected.

“You have to be making less than $125,000 a year if you’re single [to qualify for the relief], and we need to talk about how much less than $125,000 these people are making,” said Brown. “And if they’re living paycheck to paycheck, then a $1,000 [tax] bill that you weren’t anticipating is going to be difficult to pay — and people might need to weigh that. Obviously, in the long term, [erasing] up to $20,000 could be great, but how are you going to finance that thousand dollars? Are you going to take an advance on your credit card, which is going to be an enormous interest rate — much higher than on your student debt? Some may have the luxury of [support from] family members, but research shows that Black people don’t tend to have access to that intergenerational wealth.”

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