CALIFORNIA – California student loan borrowers will be granted another reprieve following Tuesday’s announcement by the Biden administration that it would extend its pandemic-era pause in federal student loan payments, while the courts determine if the debt relief plan is possible.

According to Lending Tree, California students have an average of $34,187 of debt. This is 7 percent lower than the U.S. average, which stands at $36,689.

Jan. 1 was the expiration date of the moratorium, which President Joe Biden had set before a lawsuit challenged his program that could provide thousands of dollars in debt relief to California’s 3,549,300 borrowers.

“We’re extending payment pause because we think it would be unfair to ask borrowers for a debt they don’t have to, were it not to the baseless lawsuits brought in by Republican officials and special interest,” Miguel Cardona, Education Secretary, stated in a statement.

The pause will last for six more months. First payments are due two months after June 30, unless a decision by the U.S. Supreme Court on the debt relief program is made first.

Get real-time updates from Patch to find out what’s going on in California.

The 8th U.S. Court of Appeals voted unanimously to issue an injunction on Nov. 14, stopping the Biden administration’s discharge of the debt. A federal judge also ruled against the program last week.

Over the weekend, letters were sent to approximately 16 million federal student loan borrowers. They let them know that their debt relief applications had been approved and also advised them not expect any money soon.

The program would allow up to 40 million borrowers to apply. It would eliminate student loans worth $20,000 for those earning less than $125,000 a year and less than $250,000 for married couples. According to the nonpartisan Congressional Budget Office, the program will cost around $400 billion.

Last week, the Justice Department asked the Supreme Court for an investigation into the matter and to reinstate Biden’s debt cancellation plan. Although the Biden administration expressed confidence in its program’s viability, suspended loan forgiveness applications until court challenges are resolved.

The government’s student aid website informs borrowers that they will post updates as soon as they become available. Those who have already submitted applications are also being held.

Mike Pierce, executive director of Student Borrower Protection Center said that the letters help “folks understand why they haven’t had their debts forgiv yet.”

He said that this doesn’t eliminate the economic anxiety students with student loans currently feel.

Californians Will Be Taxed?

It’s complicated.

It’s important for those who have applied for loan forgiveness to understand the tax implications of returned debt.

The American Rescue Act COVID package worth $1.9 trillion was passed last March. It eliminated federal government’s ability tax forgiven student loans up to 2025. However, this all depends on where you live.

California law allows forgiven loans to be taxed. However, lawmakers insist that California residents not be subject to such taxes.

Anthony Rendon, State Assemblyman, tweeted last month that “We’re going not to leave California’s borrower in the lurch.”

However, the California Franchise Tax Board says that any debt forgiven is technically considered gross income. In some cases, student loan forgiveness may not be allowed. However, it depends on how the Department of Education manages repayment plans.

According to The Sacramento Bee, the state is still waiting for the department’s confirmation that the forgiveness plan meets the criteria to be free of tax.

Rendon, who was tweeting jointly with Toni Atkins, Senate President Pro Tem, said that California would not tax federal student debt relief.

The Sacramento Bee was told by the state Franchise Tax Board:

Student loan debt forgiveness is generally taxable, unless it meets one the California Revenue and Taxation Code sections. This includes an exclusion for income based repayments and loan cancellation under Section1098e of federal Education Code.

“In the recent case of federal student loan debt forgiveness, it doesn’t appear that the student loans are being forgiven under Section1098e. Therefore, California would tax the student loan debt forgiveness.”

@buildingbacktogether HUGE: Biden extends pause on student loan repayments until June 30, 2023 #studentloans #studentloanforgiveness ♬ original sound – Building Back Together