Hundreds of thousands of New Jerseyans could have the burden of student debt lifted off their shoulders under President Biden's plan. (Photo by Anna Moneymaker/Getty Images)
Good news for New Jerseyans who will see their student loan debt erased or minimized by President Biden’s administration: The action won’t impact them when they file their taxes next year.
Though some states may tax loan forgiveness, New Jersey is not one of them, a spokesperson for the state Treasury said Thursday.
Neil Becourtney, a certified public accountant and tax partner at CohnReznick in Holmdel, explained that cancellation of debt is not taxable in New Jersey because state law does not consider it income.
“Bottom line: Any forgiveness that this Biden executive action results in will not result in any additional income tax for the borrower,” he said.
People will also avoid federal taxes, he added, because the American Rescue Plan made student loan forgiveness tax-free through 2025. The Internal Revenue Service typically taxes federal loan forgiveness as income.
Hundreds of thousands of New Jerseyans could have the burden of student debt lifted off their shoulders under Biden’s plan, which includes loan forgiveness for up to $10,000 in federal student debt for borrowers with income levels below $125,000 — for married couples earning less than $250,000, each person would be eligible — plus up to $20,000 forgiven for Pell Grant recipients.
New Jersey officials celebrated the news, with Gov. Phil Murphy calling it a “historic day for graduates, undergrads and future students to be” on Twitter. But the plan also drew criticism from Republicans who questioned the legality of Biden’s order, while critics on the left said Biden’s plan falls short. U.S. Sen Bob Menendez commended Biden’s action but called on him to forgive $50,000 in student loan debt.
According to federal Department of Education data, about 1. 2 million New Jersey residents hold $43 billion of the nation’s student loan debt, the 12th largest amount in the country.
Doug Stives, an accounting professor at Monmouth University, said Biden’s plan still faces an uphill legal battle, adding there “are still a lot of question marks.”
“Will they renew it or do it again? Will anyone in Congress fight it? It’s still very early,” he said.
The White House said more information and an application for debt forgiveness will be available in the coming weeks.
About one in five Americans hold student loan debt, and nearly a third of all borrowers have debt but no degree, according to the White House.
Federal student loan payments have been suspended since March 2020, when the pandemic led to widespread job losses. The suspension has been extended multiple times, with Biden saying the most recent extension, until Dec. 31, will be the last.
The loan-forgiveness program will not apply to private loans.
Nikita Biryukov contributed to this story.
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