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Action Seeks To Waive Taxes On Forgiven Student Loan Debt

The federal student debt relief program may not be subject to state taxes in California.

Recently, Governor Gavin Newsom called for the Legislature to take early action to ensure any federal student debt relief provided to Californians would not be subject to state taxes. The proposal will be part of the Governor’s budget which will be released in January.

“Californians who get student debt relief shouldn’t be hit with taxes for it. This will provide up to $1.3 billion in tax relief for more than 3.5 million Californians,” said Governor Newsom. “I look forward to working closely with the legislature to get this done through early action.”

California has nearly 3,550,000 eligible borrowers, of which an estimated 2,340,600 are Pell Grant borrowers. Estimates have shown that waiving state taxes on forgiven student loan debt will provide Californians up to $1.3 billion in relief. Individually, borrowers will save on average hundreds of dollars in state taxes, and could even save as much as $1,860.

Under President Biden’s proposal, the federal government will forgive up to $10,000 in student loans for individuals making less than $125,000 per year and up to $20,000 for those who received a Pell Grant, meant for students with the largest financial need. And, President Biden’s American Rescue Plan exempts the forgiveness of student loan debt from 2021 to 2025 federal income taxes.