Under President Biden, some student loan borrowers have had their loans forgiven, and they may not have to pay taxes on the forgiven debt. The Biden administration has been working to provide relief to student loan borrowers, having allocated $136.6 billion in aid or forgiveness to more than 3.7 million people via the Education Department.
Normally, forgiven debt is considered taxable income under current tax law. However, the American Rescue Plan Act of 2021 provides a temporary exemption for student loan forgiveness between Jan. 1, 2021, and Dec. 31, 2025. This means that student loan debt forgiven during this period won't be included in federal taxable income.
In most states, forgiven student loan debt will also remain untaxed. Only a few states, such as Arkansas, Indiana, North Carolina, Mississippi, and Wisconsin, are currently set to tax forgiven student loans, largely due to the way their tax codes conform to the federal code.
Although President Biden's signature student loan forgiveness plan was blocked by the Supreme Court, had it gone through, it would have also come with a federal tax exemption. On the other hand, student loan amounts forgiven through the Public Service Loan Forgiveness (PSLF) program are not considered income for tax purposes by the federal government, though some individual states may tax it.
President Joe Biden recently praised the latest jobs report, highlighting strong wage gains and employment increases. However, the report may present challenges for his re-election campaign due to the potential risks of inflation and recession associated with the robust job figures. The unexpected nonfarm payroll numbers and rise in hourly earnings have raised concerns about the effectiveness of Fed chair Jay Powell's economic measures and the possibility of ongoing economic overheating.
The reaction in the markets to this data has been notable, with futures markets reducing bets on early interest-rate cuts and lowering estimates for rate cuts later in the year. There is a growing apprehension about inflation reacceleration, which may lead to prolonged higher interest rates. Additionally, the surge in the yield on the 10-year Treasury note following the jobs figures could result in sustained elevated mortgage rates, impacting the real estate market and exacerbating the challenge for prospective homeowners, particularly younger individuals.
The release of a contrasting set of household survey numbers by the Labor Department further complicates the situation, as they indicate weakening labor-market conditions. These numbers reveal a decline in employment and raise concerns about the health of the jobs market, especially considering the divergence between the establishment survey and the household survey. While the establishment survey suggests a thriving job market, the household survey's less optimistic outlook underscores the need for careful monitoring of the economy's direction.
Despite the current optimism, the conflicting data from the household survey raises questions about the potential for a recession or economic stagnation. Most economists believe that the U.S. will avoid a recession, but the discrepancy between the two surveys emphasizes the importance of closely monitoring the evolving economic landscape.
Blockbuster job growth in the past several months has coincided with high-profile layoff announcements by several large companies.
So, how are both occurring at the same time? It’s not as contradictory as it might seem. Recent job cuts have been concentrated mainly in just a few sectors: technology, finance and media.
Relative to the U.S. labor force of 160 million people, layoffs so far have been dwarfed by consistently vigorous hiring — a monthly average of 248,000 jobs added over the past six months. The unemployment rate is still just 3.7%, barely above a 50-year low.
It turns out that many of the companies that are now shedding jobs had over-hired during the pandemic, when they thought the trends that emerged then — especially a surge in online shopping — would continue apace. As the economy has normalized, many of these companies have discovered that they no longer need so many employees and have responded with layoffs.
In January, American businesses and other employers added a blistering 353,000 jobs — the biggest monthly haul in a year. The government also revised its estimate of job gains in November and December by a combined 126,000. The data provided compelling evidence that most companies, large and small, are confident enough in the economy to keep hiring.
Several of the companies that have announced layoffs are among the most well-known household names: Google, Amazon, eBay, UPS, Spotify, and Facebook’s parent Meta. Not that they’ve been the only ones. Challenger, Gray & Christmas, a leading outplacement firm, reported this week that businesses announced 82,000 layoffs in January, the second-most for any January since 2009.
Here are some reasons why these seemingly disparate trends are coinciding:
JOB GAINS AND JOB CUTS ARE HAPPENING IN DIFFERENT INDUSTRIES
In most industries, businesses have kept adding workers over the past three months. Manufacturers, for example, added 56,000 in November, December and January combined. Restaurants, hotels, and entertainment companies gained nearly 60,000 over that time. Healthcare providers — hospitals, doctors’ offices, and dentists — added a whopping 300,000.
They’re not all low-paying jobs, either: A sector that the government calls professional and business services, a sprawling category that includes accountants, engineers, lawyers, and their support staff — has 120,000 more jobs than it did in October. Federal, state, and local governments, which regained their pre-pandemic levels of employment in September, also added nearly 120,000 jobs over that period.
The job cuts, by contrast, have been more concentrated. The Labor Department doesn’t track technology jobs specifically, but Friday’s jobs report pointed to signs of the industry’s struggles: The unemployment rate for workers in what the government calls the “information” sector, which includes media and tech workers, jumped to 5.5% in January from 3.9% a year ago. That’s nearly 2 percentage points above the national jobless rate.
LAYOFFS DON’T MEAN THE ECONOMY IS WEAK
More confusing is why companies would cut workers if the economy is growing and consumers keep spending. Last week, the government estimated that the economy expanded at a healthy 3.3% annual pace in the October-December quarter after robust growth of 4.9% the previous quarter.
Companies tend to shed jobs for all sorts of reasons, sometimes to reflect changes in their business strategy or to maintain or boost their profit margins. Many high-tech companies that went on hiring binges in 2022, as the economy accelerated out of the pandemic recession, miscalculated the longer-term demand for their products and services.
In its survey of job cuts, Challenger, Gray & Christmas said the leading reason companies cited last month for laying off workers was “restructuring.” A year earlier, it was “economic conditions,” economists at Renaissance Macro noted, meaning that companies had previously worried more about the state of the economy.
Todd McKinnon, CEO of the software company Okta, said in a message announcing that the company would cut about 400 jobs that it entered 2023 “with a growth plan based on the demand we experienced in the prior year.”
“This led us to over-hire for the macroeconomic reality we’re in today,” he wrote.
THE LAYOFFS ARE SPREAD OVER TIME
High-profile job cuts typically involve many layoffs that aren’t implemented immediately. For example, UPS, the delivery and logistics provider, announced earlier this week that it would cut 12,000 jobs this year. But it said those reductions will take place over months. So they weren’t included in the January jobs data that was released Friday because the layoffs hadn’t yet taken place.
IT’S A REALLY BIG ECONOMY
This doesn’t necessarily mean that the government’s jobs figures will worsen over time as reductions by UPS and others are implemented. Job cuts are deeply distressing and disruptive for people who suffer from them. But layoffs even of UPS’ magnitude don’t really move the needle in the vast U.S. economy. Each month, roughly 5 million people leave their jobs or are laid off, government data shows, while more than 5 million are hired.
A raft of other data confirms that overall, the job market is fundamentally healthy. The number of people seeking unemployment benefits, long seen as a measure of layoffs, remains at a very low level. And non-government data, including hiring tracked by the payroll provider ADP, shows that private-sector companies keep adding workers.