About 175,000 Mainers will qualify for President Joe Biden’s student debt forgiveness plan.
The Biden administration on Tuesday released its state-by-state estimates for student loan borrowers who likely qualify for debt forgiveness. Nationally, an estimated 40 million Americans qualify for the plan, including up to 20 million who could see their entire debt discharged.
Under Biden’s plan, unveiled last month, borrowers who earn less than $125,000 a year, or families earning less than $250,000, would be eligible for the $10,000 loan forgiveness, while recipients of Pell Grants, which are awarded to undergraduates with high financial need, are eligible for another $10,000 in forgiveness.
About 90 percent of the benefit will go to Americans making less than $75,000 a year, according to the Biden administration.
Of the 175,000 Mainers who qualify for the Biden plan, 105,300 received Pell grants, making them eligible for the higher forgived sum.
That would peg the total Maine impact of Biden’s limited debt forgiveness at about $2.8 billion.
It’s unclear when borrowers will see that student debt evaporate, and any timeline could be delayed if the Biden plan is challenged in court.
Those Mainers who qualify for debt forgiveness won’t see a tax bill because of the windfall.
Forgiven debt is typically counted as income for purposes of taxation. For holders of student loans, that could translate into a $500 to $1,100 tax bill for that one-time influx of “income,” according to Bloomberg.
A provision of the American Rescue Plan Act of 2021 exempts forgiven student debt from federal taxation from 2021 through 2025, but whether it’s subject to state taxes depends on whether individual states adopt, or “conform,” to the changes in the federal tax code.
That’s exactly what Maine has done. Maine included that among the federal tax code changes it opted to adopt in the most recent round of tax conformity, a Maine Department of Administrative and Financial Services spokesperson told the Bangor Daily News last month.
Beyond Maine, Hawaii, Idaho, Kentucky, New York, Pennsylvania and Virginia have exempted forgiven student debt from taxation, while California, Minnesota and Wisconsin are exploring that option, according to Bloomberg.
Borrowers in Mississippi won’t be as fortunate, as the state’s Department of Revenue plans to count that debt relief as income come tax time.
