Student Debt Forgiveness, PPP Loans, And Taxes

Last updated on: September 8, 2022 at 2:47 am by Henry Karlson

Student Debt Forgiveness, PPP Loans, And Taxes 2022-09-08T02:47:52-05:00 Henry Karlson

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“And forgive us our debts, As we also have forgiven our debtors;” (Matt. 6:12 RSV). Jesus was clear: we are to be merciful to others because we have received mercy ourselves. We are meant to lift each other up, making sure that those most in need are not neglected. If we are merciless, we risk losing mercy for ourselves. This was a point Jesus wanted us to understand from his Parable of the Unforgiving Debtor. In it, he tells of a man with great debts forgiven by his lord (or king), who, nonetheless, is unwilling to be as generous to those who owe him money. Because the debtor was ruthless, his lord decided to make him pay back his debt:

When his fellow servants saw what had taken place, they were greatly distressed, and they went and reported to their lord all that had taken place. Then his lord summoned him and said to him, `You wicked servant! I forgave you all that debt because you besought me; and should not you have had mercy on your fellow servant, as I had mercy on you?’ And in anger his lord delivered him to the jailers, till he should pay all his debt. So also my heavenly Father will do to every one of you, if you do not forgive your brother from your heart” (Matt. 18:31-35 RSV).

To be sure, mercy and forgiveness are not meant only for material debts; people should be willing to forgive others who truly seek after their mercy. This does not mean we are to be imprudent. We might forgive, but that does not mean we need to forget what people have done and what they are like. While we are to love everyone, we can be and should be cautious with those who hurt us, or those who we think continue to wish us harm. St. Alphonsus Liguori explained our love is represented by our interior disposition and wish for others, using this to acknowledge we can be and should be careful in the way we engage others.[1]

What is important is that our love for others means we should be merciful to them, as we should be merciful to everyone, working to promote their good as a part of the common good. As those who are oppressed, those who are unjustly persecuted and mistreated, those who are poor, or those who are seen as outcasts of society, receive less of what should be theirs by right, so our focus should be for their promotion, as Scripture and tradition points out. This is why those who are in great debt, without the means of taking care of that debt, should be helped by society. While there are many ways this can be and should be done, depending upon the need, one way President Biden is doing this is with Student Loan Forgiveness (something which can be shown to follow sound moral reasoning, either from the Christian perspective, or from a secular standpoint).What Biden intends to do should be seen as a start, for, as most people recognize, much more needs to be done to fix the situation, including a reform of the system which has created the crisis in the first place.

Sadly, what should be a boon to those in severe need might lead to them having another unjust burden placed upon them thanks to the way many want to merciless ignore their plight and hinder anything done to help them. For, while those who receive student loan forgiveness will not have to pay federal taxes on what they receive, many states plan to have whatever amount they have forgiven deemed as income which will be taxed, such as was recently revealed as being the case in Indiana: “The Indiana Department of Revenue confirmed in an email to the Associated Press Tuesday that residents are required to list their forgiven loans as taxable income per Indiana law.”[2]

While it is important to talk about the tax burden which some states want to impose on those who receive student loan forgiveness, because, it is clear, many of them are impoverished despite whatever degrees they might have, it is also important to consider what other ramifications they might suffer as a result of states considering such funds to be taxable income. It will place many of them in higher tax income brackets, meaning they will have to pay much more in taxes, money which they might not have. Likewise, there are questions as to how this will affect other governmental aid they might receive, aid which is tied to their income. This is why we must ask what will be used to determine their eligibility for help. Will it be their federal taxable income or their state taxable income? It might seem as if federal programs would use federal taxable income to make such determinations, but what about states which have their own particular variation of those programs, such as HIP in Indiana, where HIP serves as Indiana’s accepted alternative to traditional Medicaid? Will they use state taxable income to determine eligibility? If so, then ten to twenty thousand dollars of extra income would likely make people lose their health insurance! This is a question which needs to be carefully examined so that the poor will not find what is meant to help them actually makes things worse. It is also clear that placing the burden on those who are poor, and receive only limited loan forgiveness, while making those who are rich, and received forgiveness for greater loans, such as those with PPP loans, tax exempt, is indicative of an unjust system which is aimed to harm the poor. [3]

In 1999, in preparation for the Jubilee Year and the debt relief program for poor countries promoted by the Vatican, the USCCB explained how Scripture shows us a society is to be judged by the way its underclass is treated. Debt relief, it said, is one of the ways society, and the world community, is able to help those most in need and so promote the common good:

The common good is the sum total of those conditions in society that make it possible for all persons to achieve their full potential. This broad concept suggests the need to consider a wide range of factors in assessing the moral adequacy of debt policies. Ultimately, debt policies must take into account the good of the whole society, not just segments of it, and the global common good, not just that of individual nations. A moral assessment of debt policies, therefore, must include the extent to which the debt burden undermines the ability of governments to fulfill their obligation to promote the common good, forcing them to spend their scarce resources on debt service rather than on critical investments in health, education, or clean water. Debt policies cannot be judged solely in terms of their impact on individual countries or institutions but must take into account the interests and needs of all those affected by debt, at home and abroad. From this broader perspective, the debilitating debt of poor countries far removed from our own is a problem because it erodes the global common good.[4]

But, it also pointed out, while debt relief, either on a local, national, or internal scale, is important, it should always be seen as only a start of what should be done:

Overcoming poverty and inequitable development will take more than debt relief. It will require private and public investment, foreign assistance, fair trade, better-monitored and regulated flows of capital, economic policies that favor growth, government decision making that is accountable and open, and the growth of a vibrant civil society in developing countries. Nevertheless, debt relief is often a prerequisite for long-term, sustainable development of the poorest countries. [5]

Debt relief is a foundation for a better future. With it, the extreme burdens it imposes upon people can be lifted. Nonetheless, insofar as the system remains unjust, such as through systematic racism, sexism, ageism, or other injustices, debt relief is not enough, and the system needs to be changed. Thus, when dealing with student loans and the problems associated with them, debt should only serve as a starting point; the education system needs to be reformed, making sure that future generations do not get stuck with debt. States which hinder the effectiveness of debt relief by imposing penalties or burdens on those who most need that relief, while finding loopholes to help the wealthy not have any burden imposed upon them if they have their own debts forgiven (such as happened with PPP loans), show they stand against the common good and are to be judged for their stance. They must be reformed. Some of it can be done by external pressure, as, for example, by the federal government; but in the end, much of the reform must be done within, by those living in the states, as they must remove those politicians causing the most harm from office and replace them with those who will do what they can to promote the common good.

[1] “(Moreover, the Continuator of Tournely, loc. cit., Tertio, si quis, notes that if one refused to converse with an enemy because he can expect nothing other than evil from it, or because (as St. Bernadine of Sienna says), probably he fears from this a worse thing will come about, then he may abstain from those signs of friendship, only he must love him interiorly and repair scandals with others),” St. Alphonsus Liguori, Moral Theology. Volume I: Books I – III On Conscience, Law, Sin and Virtue. Trans. Ryan Grant (Post Falls, ID: Mediatrix Press, 2017), 537.

[2] Arleigh Rodgers, “Indiana Will Tax Loan Forgiveness, Similar To Other States” in AP (9-6-2022)

[3] Indiana, for example, made sure that PPP loan forgiveness was non -taxable: “The second stimulus package also made several non-code changes with regards to loans given to partnerships and S-corporations for COVID-19 reasons. The loan amount shall be treated as tax exempt income and any expenses paid for by the loan will be fully-deductible. This treatment will change the adjusted basis of partners. Any increase to the adjusted basis of a partner’s interest in a partnership due to the excluded loan will equal the partner’s distributive share of deductions for the expenses paid for with the loan. Similar rules apply to S corporations and their shareholders.” See Indiana Department of Revenue, Coronavirus Information (Income Tax Questions).

[4] Administrative Board of the United States Conference of Catholic Bishops, “A Jubilee For Debt Forgiveness” (4-1999).

[5] Administrative Board of the United States Conference of Catholic Bishops. “

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