Pennsylvania will not tax student debt forgiveness
Seven states might tax borrowers on student loan forgiveness.
Pennsylvania is not one of them, Governor Tom Wolf says.
Pennsylvania has not been taxing student loan forgiveness for over a year now. In December 2021, Wolf said the state would stop taxing people who get debt relief through the federal Public Service Loan Forgiveness Program and the Pennsylvania Student Loan Relief for Nurses Program.
The same will apply for borrowers who qualify under President Biden’s new plan, which says people who make less than $125,000 a year–or married couples that make under $250,000 a year–can have up to $10,000 federal student debt erased. Pell Grant recipients can have up to $20,000 in loans wiped out.
“Given this positive action at the federal level, my administration does not intend to burden these Pennsylvanians with a tax bill following this beneficial action,” Wolf said.
The Department of Revenue’s revised personal income tax bulletin says student debt cancellation only qualifies as taxable if a student is providing services directly to a lender or employer in exchange for debt cancellation. State and federal programs that cancel debt after a student has worked in a profession for a certain period of time are not subject to taxation, the bulletin says.
But taxing rules for student debt cancellation are subject to decisions in future administrations, said Marc Stier, director at Pennsylvania Budget and Policy Center.
“It’s conceivable that a new governor could appoint someone to head the Department of Revenue, who would issue a different ruling,” Stier said.
The General Assembly could also propose legislation to require those who receive debt relief to pay taxes on it.
According to data from the Department of Education, 1.8 million people in Pennsylvania owe about $65 billion in debt.
The average federal debt for Pennsylvanians is $35,000, according to the Pennsylvania Budget and Policy Center. Forty percent of people with debt owe $20,000 or less.
Tuition at Pennsylvania public four-year colleges has increased 20.3% between 2008 and 2019.
The share of the average net price of attending a 4-year public university is 34% of the median household income of all Pennsylvania families, according to an analysis of 2018 data by the Center on Budget and Policy Priorities. For Black families, it is 56%, and for Hispanic families it is 48%.
“We’re the worst nation in terms of the relationship between the median income and the cost of going to college,” Stier said. “And that’s not because their median income is low or medium income is pretty high. It’s because The cost of education in Pennsylvania is so much higher than in other states.”