Resources available to assist taxpayers with understanding the student loan debt forgiveness program.

Recent legislation regarding student loan debt forgiveness may be confusing and difficult to navigate. To assist individual taxpayers in understanding this complex issue, key details about student loan debt forgiveness are listed below:

Married taxpayers whose joint AGI falls under the income cap of $250,000 will qualify even if one spouse's income exceeds the individual income cap of $125,000.

Joint filers whose AGI exceeds $250,000 will not qualify for forgiveness even if one spouse's income falls below the $125,000 threshold amount. However, this could change in the coming months, so please call the office for the latest updates.

Under the initial White House announcement on August 24, taxpayers with FFEL loans were eligible for debt relief if they were consolidated into a current federal loan program such as the Direct Loan Program. However, the administration reversed course on September 29, 2022.

Other types of debt relief are available as well including Public Service Loan Forgiveness. For example, taxpayers who have worked in public service (federal, state, local, tribal government, or a non-profit organization) for ten years or more (even if not consecutively) may be eligible to have all their student debt canceled.The deadline to apply for Public Service Loan Forgiveness is October 31, 2022.

• Up to $10,000 in federally owned student debt will be forgiven; for Pell Grant recipients, this amount is up to $20,000. Relief is capped at the amount of outstanding debt.

• Adjusted gross income (AGI) for 2020 or 2021 (whichever is lower) cannot exceed $125,000 for single filers; $250,000 for joint filers.
• Qualifying loans include Direct Stafford Loans, all Direct subsidized and unsubsidized federal student loans, Parent Plus, and Grad Loans.

• Loan debt under the Federal Family Education Loan (FFEL) program (discontinued in 2010) does not qualify. FFEL loans were guaranteed by the federal government but lent out by private lenders.
• Certain borrowers already enrolled in income-driven student loan repayment plans may get their debt automatically discharged. The Education Department has indicated it will verify income for tax years 2020 and 2021 using data obtained through FAFSA (Free Application for Federal Student Aid).

• December 31, 2023, deadline to apply for the one-time student loan debt relief. However, to receive relief before the payment pause expires on December 31, 2022, borrowers should apply by mid-November. Visit StudentAid.gov for details.

Federal Resources

Federal Student Aid, Office of US Education Department

The Biden-Harris Administration's Student Debt Relief Plan Explained

Public Service Loan Forgiveness

Federal Tax Treatment of Forgiven Student Loan Debt

Generally, the IRS treats forgiven debt as taxable income; however, under the American Rescue Plan Act (ARPA), individual taxpayers can exclude certain student loan debt from income that is canceled or discharged after 2020 and before 2026. The exclusion applies if the loan is:

• discharged due to a student's death or total permanent disability for tax years 2018, 2019, or 2020;

• discharged in 2021 through 2025 for any reason;

• canceled or discharged in any tax year if the student works for a specified period in certain professions for a broad class of employers; or

• if the student receives repayments of forgiveness of student loans as a participant in certain public health programs or due to certain school closures.

State Tax Treatment of Forgiven Student Loan Debt

While taxpayers who have student loan debt forgiven will not owe federal taxes under the conditions stated above, they should be aware that some states do treat forgiven student loan debt as taxable income. As such, some borrowers could owe state tax on the forgiven debt. Generally, states that use federal income as the basis for state tax returns do not tax forgiven student loan debt.

The following states have indicated that they will tax forgiven student loan debt: Arkansas, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin. However, it is important to note that regulations and policies may change at any time. Please contact the office for the latest updates on state taxation of student loan debt forgiveness.