On Aug. 31, the North Carolina Department of Revenue announced forgiven student loans are still considered taxable income under state law.
The Biden administration announced on Aug. 24 it would be forgiving up to $20,000 in student loans. It also stated that the forgiven debt would not be treated as taxable income and would be exempt from federal income tax.
This is due in part to Section 108(f)(5) of the Internal Revenue Code– enacted by Congress under the American Rescue Plan act – which expanded what types of student loan forgiveness would be exempt from federal income taxes.
However, the NCDOR stated in a press release that the N.C. General Assembly did not adopt this statute, meaning the state could still tax the loan forgiveness as income.
Under the Biden administration's plan, individuals that earn less than $125,000 or married couples that earn less than $250,000 per year qualify for debt cancellation.
Those who receive federal Pell Grants — aid for undergraduate students with “exceptional financial need” — will be awarded up to $20,000 in debt cancellation. Non-Pell Grant borrowers will receive up to $10,000.
In a Sept. 14 press release, Gov. Roy Cooper urged Republican legislators to exempt forgiven student loans from state income taxes.
William Goldsmith, a teaching assistant professor of public policy at UNC, said that this topic is likely one Republicans will steer clear of and Democrats will lean into for the upcoming election season.
He said while income taxes are lower at the state level, he understands students’ frustrations about having to pay income tax.