Biden's Loan Forgiveness Will Be Taxed As Income In Minnesota

MINNESOTA — Minnesota residents who qualify for President Joe Biden's student loan forgiveness plan will have to file any relief they receive as taxable income.

The relief won't be taxed federally, but Minnesota tax law is currently out of step with national tax law.

"A provision to conform to American Rescue Plan Act (ARPA), Public Law 117-2, section 9675, Modification of treatment of student loan forgiveness was in Governor Walz’s tax bill and the conference committee agreement this last session which ended in May," Shane Delaney, a spokesperson for the Minnesota Department of Revenue, told Patch in an email.

"However, that legislation was not passed so Minnesota is currently out of conformity with federal law in that area. If the state does not conform to this federal law, then Minnesota taxpayers who have their student debt discharged will have to add back this amount for Minnesota income tax purposes."

Up to $20,000 in student loan debt will be canceled for millions of borrowers in Minnesota and other states under a long-awaited federal plan announced by Biden last week.

Here’s a look at how student loan debt is affecting borrowers in Minnesota, according to the Education Data Initiative:

• 788,600 Minnesota residents have student loan debt, or
• The average debt per borrower is $33,604
• Combined, Minnesota student loan borrowers owe $26.5 billion
• 13.8% percent of Minnesota residents currently owe student loan debt.
• About 24 percent owe between $20,000 to $40,000
• About 2 percent owe more than $200,000

The federal government plans to forgive $10,000 in student loan debt for borrowers in Minnesota and across the nation who are making $125,000, or for families earning $250,000 a year or less.

An additional $10,000 of forgiveness will go toward borrowers who received Pell Grants for college, which typically go to people from lower-income backgrounds.

Also under the new plan, payments on federal undergraduate loans can be capped at 5 percent of a borrower’s monthly income.

Biden also directed officials to extend an existing pause on federal student loan payments until Dec. 31. The pause, implemented to provide significant financial relief to those affected by the coronavirus pandemic, went into effect in May 2020 and was extended several times under the Trump and Biden presidencies.

It was scheduled to expire on Aug. 31.