Alabamians likely won’t owe any state taxes on the amount received from President Joe Biden’s student loan forgiveness plan announced last week.
According to the Tax Foundation, most student loan borrowers will be exempt from paying federal income taxes on the forgiven amount of up to $20,000 under Biden’s plan.
Will state income taxes also be exempt in Alabama? Yes, according to the Department of Revenue.
“Alabama is tied to the federal statute for income from the discharge of indebtedness,” Frank Miles, Department of Revenue spokesman, told 1819 News. “If it is determined to not be taxable for federal, it will also not be taxable for Alabama.”
The average student loan debt in Alabama is $37,137. The total student loan debt in Alabama is $23.5 billion, according to the Education Data Initiative.
Estimates on how much student loan forgiveness will cost taxpayers are already growing dramatically as economists and researchers learn more about Biden’s plan. The White House initially estimated the plan would cost taxpayers $240 billion over a 10-year period.
However, an analysis by the Penn Wharton Budget Model estimates the plan could cost over $600 billion over the same time period, according to Bloomberg.
“The President’s debt forgiveness plan is certainly beneficial to some, but it would add to the national debt and worsen inflation,” Arnav Gurudatt, Garrett Watson, and William McBride wrote in a Tax Foundation report about the plan. “In addition, it sets a new precedent and expectation for further debt forgiveness, which would further increase the national debt and inflation. It may also push tuition prices higher, as more students treat loans essentially as grants.”
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