What Borrowers Need to Know

If you were among federal student loan borrowers who received forgiveness in 2024, you may be on the hook to pay state income tax if you live in certain states.

In 2024, then-President Joe Biden forgave billions of dollars in student loans for borrowers across the country. Generally, forgiveness of any debt is considered taxable income. However, in 2021, former President Joe Biden’s administration implemented the American Rescue Plan Act (ARPA), which excludes all federal student loan forgiveness from federal income tax until 2026.

When it was instituted, some states’ tax laws did not automatically implement ARPA. These states had to decide if forgiveness would be taxed as income on the state level. Five states—Arkansas, Indiana, Mississippi, North Carolina, and Wisconsin—chose to tax that forgiveness, but each has a different policy.

Here are the rules for those five states.

Arkansas

Student loan forgiveness is considered taxable income under Arkansas tax policies.

“That does include most student loan forgiveness. The exceptions are Public Service Loan Forgiveness and forgiveness for total disability,” wrote Scott Hardin, a spokesperson for the Arkansas Department of Finance and Administration in an email.

Indiana

In Indiana, all federal student loan forgiveness is taxable besides loans forgiven under PSLF, Teacher Loan Forgiveness, National Health Service Corps, and in the case of total and permanent disabilities, bankruptcy, or the death of a student.

Mississippi

Mississippi taxes loan forgiveness, the Mississippi Department of Revenue told Investopedia in an email. However, there is an exception for debt canceled under the Coronavirus Aid, Relief, and Economic Security (CARES).

North Carolina

In North Carolina, you’re required to add the student loan forgiveness amount back to your taxable or adjusted gross income (AGI). This tax policy applies to all student loan forgiveness unless their loans were canceled on account of death or total and permanent disability.

However, if your student debt was forgiven due to insolvency, the rules are slightly different and vary on a case-by-case basis.

Wisconsin

All student loan forgiveness is taxed in the state, except if it was given through PSLF, death of a student, total and permanent disability, teacher loan forgiveness program, and National Health Service Corps Loan Repayment program.