Pennsylvania exempts canceled student loans from tax

Pennsylvania will no longer impose state income taxes on public sector workers and nurses who receive student loan forgiveness from two major programs, the Wolf administration said on Friday.

The change impacts participants in the federal public service loan forgiveness program, which provides debt relief for teachers, social workers, the military and other public servants, and the loan relief program. Pennsylvania student loans for nurses, a recent pandemic-era initiative to forgive up to $ 7,500 in student loan debt incurred by state registered nurses.

Most other states and the federal government don’t tax student loan cancellation, but state lawmakers pushing for the change have said the state Revenue Department has considered student loans. written off as taxable income. This meant that a Pennsylvania resident who owed $ 50,000 in student loans would be subject to a state tax bill of $ 1,535 once that debt was canceled.

“These people have chosen to serve the public, and often in less rewarding fields, because they want to make a difference. They don’t have thousands of dollars lying around to pay just one tax bill. So it is wrong to take what should be a blessing and make it yet another burden, ”Governor Tom Wolf said at a press conference on Friday.

The Revenue Department sent out a bulletin on Friday clarifying that cancellation of student loans through the two programs would not be subject to state taxes.

Established in 2007, the Public Service Loan Forgiveness Program promises that college graduates who hold public service jobs or work for nonprofit organizations can recover their federal student debt after making 10 years of monthly payments. The Biden administration recently relaxed eligibility rules after the program was criticized for rejecting more than 90% of applications.

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