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Chicago — Student loan borrowers who had a loan forgiven under the Biden administration may not have to pay taxes on the erased debt.
Legally, forgiven student loan debt is treated as if the borrower earned additional income to equal the amount of debt forgiven. But, borrowers working toward loan forgiveness under income-driven repayment (IDR) plans are temporarily exempt from taxes under the American Rescue Plan Act of 2021. That law states that debt forgiven between Jan. 1, 2021 and Dec. 31, 2025 is not included in federal taxable income, Axios reported.
IDR plan utilizers aren’t the only ones spared from such a tax burden. Student loan amounts forgiven through fixes in the Public Service Loan Forgiveness (PSLF) program are not considered income for tax purposes.
However some individual states may tax it. Currently, there are five states on track to tax any forgiven student loans: Arkansas, Indiana, North Carolina, Mississippi and Wisconsin.
“This is not because they made an affirmative choice to tax student loans as such," said Jared Walczak, vice president of Tax Foundation. "Instead, it's the nature of the way that the state's tax codes conform to the Federal Code."
Noah Johnson (he/him/his) is a Chicago-based journalist. Follow him on X: @noahwritestoo.
Edited by NaTyshca Pickett