The Biden administration’s plan to reduce student loan burdens by $10,000 could come with a catch for some Americans — they’ll be expected to pay taxes on the savings.

That’s the upshot of an analysis by the Tax Foundation, a nonpartisan think tank, that says some beneficiaries of the Biden loan plan could be on the hook for as much as $1,100 in taxes.

The White House has said that the forgiven portions of student loans will not be considered taxable income for the purposes of federal income tax, and most states follow federal guidance on such discharged debt.

But 13 states — including New York — may break from the federal government and consider the discharged debt as taxable income.

The Tax Foundation analysis estimates that borrowers in Hawaii could face the highest maximum liability if the state decides to tax the reduction — as much as $1,100, depending on the borrower’s tax bracket.

Minnesota scores high at $985 and South Carolinians could be expected to pay up to $700.

New Yorkers face a likely maximum liability of $685.

According to an analysis, beneficiaries of President Biden's student loan forgiveness plan may have to pay taxes in 13 states.
According to an analysis, beneficiaries of President Biden’s student loan forgiveness plan may have to pay taxes in 13 states.
Photo by SHAWN THEW/EPA-EFE/Shutterstock

Borrowers in Arkansas, Idaho, Kentucky, Massachusetts, Mississippi, Pennsylvania, Virginia, West Virginia and Wisconsin could also see their loan reductions show up as state income tax burdens.

The figures could quickly change, however, as states conduct their own analyses.

“In the coming weeks and months, we are likely to see states issue guidance on the treatment of discharged student loan debt,” Jared Walczak, the foundation’s vice president for state projects, wrote.

“New York in particular is hard to gauge, since the state generally conforms to the federal definition but has administratively determined that student debt discharged due to death or disability … should be added back to taxable income,” Walczak added. “[New York] is silent on debt discharged for other (or no specific) reason.”

The Biden plan will forgive $10,000 of student loan debt for any single borrower making $125,000 or less — or any married couple making under $250,000. Borrowers who received a federal Pell Grant — meant for low-income borrowers — could see up to $20,000 forgiven.

The White House estimates some 43 million borrowers will benefit from the reduction.



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