President Joe Biden’s student loan forgiveness plan could lift crushing debt burdens from millions of borrowers, but the tax man may demand a cut of the relief in some states.
PUBLISHED 11:30 AM EDT Sep. 04, 2022 could lift crushing debt burdens from millions of borrowers, but the tax man may demand a cut of the relief in some states.
That’s because some states tax forgiven debt as income, which means borrowers who are still paying down student loans could owe taxes on as much as $10,000 or even $20,000 that was taken off their bill.
Newman said she can come up with the cash because she has a good job, but she knows of a lot of other borrowers who will still be stuck in difficult financial positions even with their loans forgiven. “If they stay in the state, they could end up with a pretty hefty tax burden if things don’t change,” Newman said. “I won’t be happy if I have to do it. I can do it. But a lot of people can’t.” cut or eliminated under the forgiveness plan Biden announced late last month. The president is erasing $10,000 in federal student loan debt for individuals with incomes below $125,000 a year, or households that earn less than $250,000.
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