Biden recently announced student-debt relief for over 800,000 borrowers on income-driven repayment.
The American Rescue Plan said debt relief will not be subject to federal taxes through 2025.
While most states adopted the same guidance, some states could tax the latest relief.
Student-loan forgiveness is starting to hit thousands of borrowers’ accounts — but it might be subject to a state tax.
On Monday, President Joe Biden’s Education Department announced it was beginning to discharge student loans for 804,000 borrowers as a result of a one-time account adjustment for borrowers on income-driven repayment plans.
Through the adjustment, the department looked at the accounts of borrowers who have completed the required 20 or 25 years of qualifying payments on an income-driven repayment plan but had yet to receive the loan forgiveness the programs promised.
Under these plans, if a borrower makes 20 or 25 years’ worth of payments, they get the remaining balances of their loans forgiven.
But because of errors and administrative failures of the student loan system that started long before he took office, over 804,000 borrowers never got the credit they earned, and never saw the forgiveness they were promised, even after making payments for decades.
From the standpoint of tax simplicity and neutrality, the rules regarding the tax treatment of forgiven loans should be consistent and broadly applied, rather than fragmented and preferential.
Do you agree?
