Michigan won’t tax forgiven public student loans

(The Center Square) – Gov. Gretchen Whitmer said on Wednesday that the forgiven student loans of about 1.4 million Michiganders won’t be treated as taxable income.

Typically, the Internal Revenue Service treats debt forgiven as taxable income, meaning that Michiganders could have been taxed student loan debt wiped by President Joe Biden’s plan for Public Service Loan Forgiveness.

“Tax-free student loan forgiveness could benefit up to 1.4 million Michiganders and help keep money in their pockets,” Whitmer said in a statement. “Michigan PSLF recipients who serve their community will not be taxed for any amount of student loan relief they have received. In Michigan, we value the hard work that all our citizens put in to get the education they need. I will work with anyone to keep lowering the cost of higher education and help students not go into debt in the first place.”

Federal loans discharged between 2021 and 2025 won’t be considered taxable income by the federal government or state government through 2025.

Those who work in public service, including the military, qualifying nonprofits, or federal, state, local, or tribal governments, may qualify for PSLF after 10 years of public service employment and 120 on-time loan payments.

PSLF program changes allow previously ineligible borrowers, such as those with a non-direct loan or who have missed a repayment, to receive credit toward loan forgiveness for years worked in government or a qualifying nonprofit.

PSLF was established in 2007 but before the 2021 overhaul only succeeded in forgiving student loans for 2.1% of processed applications. 

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