Federal tax-free student loan forgiveness was promised as part of the American Rescue Plan of 2021. States decide if they want to tax at the state level.
Student loan borrowers who make less than $125,000 per year will have between $10,000 and $20,000 of federal student loan debt forgiven, President Joe Biden announced on Aug. 24.
Since the announcement, VERIFY has received many questions from readers about what exactly that means for the American student loan borrower.
Several of those questions have been about federal and state taxes, such as one from viewer Loralea, who asked if their state would tax loan forgiveness.
Will people who receive student loan forgiveness have to pay federal or state taxes?
People will not pay federal taxes on student loan forgiveness, but states could decide to tax money forgiven by the federal government as income. So far, no states have announced that they will tax forgiveness, and at least one has said it will not.
Federal taxes
The American Rescue Plan Act (ARPA) of 2021 was passed in March 2021 as part of a COVID-19 relief package that stipulated any debt forgiven from Dec. 21, 2020 to Jan. 1, 2026 will not count as income.
This means eligible borrowers don’t have to pay federal taxes on any student loan forgiveness through Dec.
