Porter warns student loan borrowers their federal debt relief is taxable by the State of Indiana, announces plan to file legislation to fix discrepancy
INDIANAPOLIS – Nearly 900,000 Hoosiers have some federal student loan debt and stand to benefit from President Biden's cancellation of student debt. Borrowers earning less than $125,000 individually and $250,000 as a household will have up to $10,000 of debt forgiven, and Pell Grant recipients with student debt will have up to $20,000 of debt forgiven. Almost 300,000 Hoosiers will have their federal student loan debt entirely eliminated.
However, current Indiana tax law requires that residents report a discharge of student loan liabilities as income. As a result, Hoosiers with forgiven loans will see up to $20,000 added onto their income tax liability and taxed at 3.23%. Student debt forgiveness will not be taxed federally, and most other states do not require that student debt forgiveness be counted as income.
Rep. Gregory W. Porter (D-Indianapolis), ranking Democrat on the House Ways and Means Committee, commented on this development and announced a plan to fix this discrepancy:
“Many student borrowers have paid back their original loan amount and then some, but interest rates have kept them from paying off their debt and allocating that money toward buying a house, saving for retirement or starting a family. The federal government and the vast majority of other states have correctly chosen not to tax student debt forgiveness. I can't say I'm surprised Indiana has chosen to take a punitive stance on a policy meant to give working-class Americans relief, but there's still time to change this.
“Because taxing student debt relief when we have a $6.1 billion and growing surplus is unfair and needlessly counterproductive, I am drafting a bill to retroactively eliminate and nullify any state individual income tax being imposed on Hoosiers who are finally in a position to receive vital student debt relief. That way, impacted individuals can avoid up to $600 in tax liability that would result from this policy choice.
“In the meantime, however, I urge all Hoosiers with federal student loans to stay vigilant and not forget that this debt relief will currently be considered income and thus tax-liable in our state.”