A federal judge has temporarily blocked President Joe Biden’s student debt relief plan. (Getty Images)
More than 850,000 Hoosiers could see at least some of their federal student loan debt forgiven through President Joe Biden’s student loan forgiveness program.
Roughly 856,400 Hoosiers are eligible to have at least $10,000 in student loan debt canceled, the White House announced Tuesday. Most of those recipients – about 555,500 – could have up to $20,000 forgiven because they received Pell Grants, which are provided to students whose families can’t help them pay for college.
The Biden administration’s student loan forgiveness initiative that was announced last month applies to borrowers with incomes less than $125,000 and from households earning $250,000 or less.
Will Indiana address loan forgiveness tax?
Still, the Hoosier State is set to be one of a handful of states in the country to tax canceled debt.
Source: Oregon Capital Chronicle
Any discharged debt will not be counted as income for federal tax purposes, but the Indiana Department of Revenue said the state will include the debt forgiveness when calculating state and local income taxes.
Much of Indiana’s tax code is crafted to align with the Internal Revenue Code. The most recent update to that code — made after the American Rescue Plan Act passed last year — creates a tax exemption for all student loan debt discharged from 2021 to 2025.
State lawmakers approved Indiana’s most recent tax code last year but chose to remove the federal exemption on taxing canceled student loan debt.
Republican House Speaker Todd Huston told IndyStar that lawmakers made the change before they knew what federal student loan forgiveness looked like, and so they could decide whether to follow the federal government’s lead in making it tax free. He told the Indiana Capital Chronicle that lawmakers expect to address the topic in the upcoming legislative session.
Gov. Eric Holcomb said last week that “it’s a legislative issue,” and that state leaders “will take it up in January.”
Rep. Greg Porter, D-Indianapolis, said he plans to file a bill in the next session that would “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.”
It’s unclear whether the GOP-dominated legislature would be on board.
Sen. Aaron Freeman, R-Indianapolis, was critical of the federal loan forgiveness plan while speaking in a budget panel Tuesday before the Governmental Affairs Society of Indiana, saying taxpayer dollars could be better spent on K-12 line items. He also pointed to tuition freezes — like those at Purdue University, which started in 2012 — as a possible solution to lowering higher education costs while still “holding people accountable.”
“I don’t know what we’re doing with higher ed by saying, ‘I’ll just charge whatever you want in tuition and the government will take care of it.’ That’s astronomically insane to me,” Freeman said.
He also noted that “I paid every nickel of my student loan back with interest, and I want my money back.”
His colleague, Sen Fady Qaddoura, D-Indianapolis, pushed back, however.
“You know, we give hundreds of millions of dollars as a nation to businesses, and they pay taxes, too. And I don’t feel bad about supporting businesses — or families. I think it should be balanced,” Qaddoura said. “I think if we can advance society in a way that can help people in a good public policy, in a fiscally responsible way, I’ll support them.”
Still more time before feds open applications
The U.S. Department of Education hasn’t yet made applications for loan forgiveness available, but federal officials said those are expected to open in early October.
Most borrowers haven’t had to make student loan payments since March 2020, when federal loan payments were first paused at the onset of the COVID-19 pandemic. Federal loans haven’t accrued interest or required payments since then.
Biden said the payment moratorium would be extended one final time — through the end of the year. But payments are set to resume and interest will begin accruing again in January 2023.
The president’s plan for paying back loans is based on discretionary income and raises the amount of income considered “nondiscretionary” — which protects those dollars from being used for loan repayment.
U.S. education officials said they plan to halve the monthly payments for some borrowers from 10% to 5% of discretionary income.
The Biden administration said nearly 90% of all relief dollars will go to those earning less than $75,000 per year – and no relief will go to any individual or household in the top 5% of incomes in the United States.
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