Indiana plans to tax amounts received from President Joe Biden’s new student debt relief plan. The state is one of at least seven others in the nation, according to the Indiana Daily Student.
This is due to last year’s state budget bill, which removed the federal tax exemption put in place to prepare for the relief plan. It means program participants can be taxed through their state and county.
Those eligible for the program can earn up to $10,000 in forgiveness depending on their income. Or, if they qualify for the Pell Grant, they can receive up to $20,000. For a Monroe County resident, they would pay around 4.5% tax on the amount received from the program, including state and county tax.
Some students don’t see why Indiana feels the need to tax student debt relief, including sophomore Lauren McKay.
“It’s just kind of semi-weird, but not,” she said. “It just feels like if it’s helping people, why is there a flipside on things?”
McKay received a Pell Grant before her freshman year, and she plans to take out more loans to go to law school.
“I haven’t paid off the loans that I had last year,” she said. “So, they’re still out there and present.”
Phil Schumer, IU’s executive director of financial wellness and education, details federal and state guidance on taxing student debt relief.
But there are those who stand opposed to student debt relief taxes. In late September, a law firm sued on behalf of an Indiana resident who claimed the debt relief plan was unconstitutional and impacted him negatively, according to WRTV. The resident was already receiving untaxed debt relief through the Public Service Loan Forgiveness Program. But, a judge denied the plaintiff’s initial request to put a hold on the relief program.
“They wouldn’t be taxed,” Phil Schuman, IU’s executive director of financial wellness and education said of the plaintiff. “So, in this case, they’re having some of their loans forgiven while they’re already on track for this other plan, and they’re gonna get taxed now for this.”
The Biden administration addressed this by announcing that eligible program participants have to opt into the student debt relief, Schuman said. According to NPR, the administration also pulled back the eligibility; no privately held federal loans are eligible unless the borrower applied to consolidate them before Sept. 29.
There is also a pause on student loan payments until December 31st, according to the Federal Student Aid website.
The U.S. Department of Education hasn’t released the application for student debt relief yet, but it’s expected sometime this month. Potential participants can stay updated through studentaid.gov.
Phil Schumer, IU’s executive director of financial wellness and education, speaks on how students can sign up for federal student debt relief.
