President Biden’s SAVE plan is not entirely tax free

The new income-driven repayment plan (IDR) proposed by President Joe Biden (known as the SAVE plan) may be able to forgive some student loans for millions of borrowers. However, according to a report by the Tax Foundation, some states may still tax student debt savings even though discharged student debt is exempt from federal taxation under the American Rescue Plan Act of 2021.

It has been reported that Indiana, North Carolina, and Mississippi will in fact tax the balance of forgiven student loans as income. There is a possibility that taxpayers in Arkansas and Wisconsin may also owe taxes on forgiven student loans, but from what we know, these states are still reviewing their tax laws.  Other states could still introduce rulings on how they will treat this debt forgiveness as we head into the 2023/2024 tax season.

In August this year, the Saving on a Valuable Education plan (SAVE) was introduced by the Biden administration to continue to deliver on his promise to help student loan borrowers after the Supreme Court struck down Biden’s original student loan forgiveness plan.

The SAVE plan is expected to benefit over 20 million Americans with student debt who have been paying back their debts for over 20 years.  It is estimated that over one million Americans have already received cancellations of their debts. In a statement, the White House said the new IDR plan would reduce monthly payments to zero for borrowers earning $32,800 a year or less. The maximum repayment period rises by one year for every additional $1,000 borrowed for borrowers borrowing $12,000 or less.

To apply for SAVE or get more information on how to qualify for student debt forgiveness, visit www.studentaid.org.

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