LOCALIZE IT: Student loan debt relief could bring tax bills
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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.
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.
In Mississippi, Minnesota, Wisconsin, Arkansas and North Carolina, forgiven student loans will be subject to state income taxes unless they change their laws to conform with a federal tax exemption for student loans, according to a tally by the Tax Foundation, a Washington, D.C.-based think tank.
Spokespeople for tax agencies in several states — including Virginia, Idaho, New York, West Virginia, Pennsylvania and Kentucky — told The Associated Press that their states definitely won’t tax student loans forgiven under Biden’s program. But revenue officials in a few other states said they needed to do more research to know.
Biden's plan will eliminate or reduce student loan debt for more than 40 million Americans. So student loan borrowers are in every community, and audience interest is virtually limitless. Find AP's latest coverage here. https://apnews.com/article/biden-education-minnesota-mississippi-ffe9ed18bf0a434970ab09b1d89800e2
Some tips for localizing the story:
RESOURCES
— To find out whether your state would tax forgiven student loans, start with the Tax Foundation, which has been keeping a tally: https://taxfoundation.org/student-loan-debt-cancelation-tax-treatment
— As the Tax Foundation shows, it’s not always easy to tell just from the statutes what a state’s tax laws are. They’re doing the hard work of figuring that out.
— Another authoritative source would be your state’s revenue department, with the caution that some states are still researching whether forgiven student loan debt would be taxable under their laws. It’s not necessarily a simple question.
— For data on borrowers, the U.S. Department of Education publishes data on federal student loans, with some state breakouts. See: https://studentaid.gov/data-center/student/portfolio
— At that website you can click “portfolio by location” to see the number of borrowers and total debt in each state. There are also more specific spreadsheets to break it down by state and debt size, state and age, etc.
— NOTE: Pandemic legislation passed last year means student debt forgiveness would not be subject to federal taxes. The legislation exempts most forgiven student debt from federal taxes through 2025.
QUESTIONS/REPORTING TIPS
— What kinds of students and borrowers depend on student loans in your state? What are their backgrounds?
— Are there income and demographic patterns?
— Students who get Pell Grants qualify for up to $20,000 in debt forgiveness. They tend to be from lower-income families, and presumably would have a harder time paying the tax bill. How do they feel about this?
— You may also be able to get local data from your state’s education or higher education department.
— Your governor's office and key legislators, including chairs of the tax and higher education committee's, may have ideas on how likely it is — or isn't — that your state will change its laws to conform with the federal exemption.
— To find borrowers in your state who might get hit with taxes on their forgiven debt, you might be able to find some on social media, such as Twitter, by searching for borrowers who've publicly complained about their plight.
— This is back-to-school time at many colleges and universities. Incoming freshmen probably won't qualify for debt forgiveness. But you might find upperclassmen and graduate students who could be affected by staking out the financial aid office at your local college. And don't forget that traditional two- and four-year public colleges aren't the only schools where students borrow from the federal student loan program to cover their costs.
ADDITIONAL BACKGROUND
— You can find previous AP stories on student loans here: https://apnews.com/hub/student-loans
— And you can find previous AP stories on Pell Grants here: https://apnews.com/hub/pell-grant
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Localize It is an occasional feature produced by The Associated Press for its customers’ use. Questions can be directed to Katie Oyan at koyan@ap.org.