After the announcement of President Biden's student loan forgiveness plan, borrowers could see up to $20,000 of their debt forgiven, but it may cost them down the line.
State tax may be charged to the debt forgiveness, tax laws vary from state to state.
States confirm plan to tax student loan handout funds https://t.co/IsA8Y4HhhK
— Fox News (@FoxNews) September 9, 2022
Former Mississippi State college student Dee Stegall was initially excited when he found out he would be receiving $20,000 in student loan forgiveness, but the excitement didn't last too long.
"Within 24 hours, those feelings get complicated, because then you realize that depending on what state you're in – Mississippi – you could potentially be paying taxes on that," Stegall said.
Forgiven debt is taxed like its money you earned when you complete your income tax return.
The amount of money taxed would be small compared to the benefits the borrowers have received.
"If you had to pay $1,000 of income tax in Mississippi or $20,000 plus interest over time, you know what the thousand dollar tax bill is a blessing," Steve Rhode, a consumer debt expert, said. Rhode also pointed out that it's early in the student debt forgiveness plan and things can change.
So far, Mississippi, Minnesota, Wisconsin, Massachusetts, Arkansas, Indiana and North Carolina have announced plans to tax the student loan handout funds, according to Fox News. But if you file in Virginia, Idaho, New York, West Virginia, Pennsylvania and Kentucky, don't expect to be taxed.
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