Pa. eliminates tax on forgiven student loans

Written by on December 20, 2021

Pa. eliminates tax on forgiven student loans

By Sam Dunklau / WITF

December 20, 2021

Pennsylvania has a gift for people working hard to pay off a student loan. (Photo | Tom Downing / WITF / File)

A holiday gift may be in store for some Pennsylvanians working to have their student loans forgiven. It comes courtesy of the state.

The commonwealth will no longer charge a 3-percent tax once your loan is forgiven if you meet certain requirements including if you work for a government agency, non-profit, or as a nurse in the commonwealth.

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And you must be signed up for a federal and/or state loan forgiveness program.

Until now, Pennsylvania looked at forgiven student loan money as income, meaning borrowers could be hit with a hefty tax bill.

Gov. Tom Wolf says since they already have to work to qualify, receiving a tax bill as well just isn’t fair.

“They have worked hard. They have made loan payments. They have earned the right to get relief from their education debt and now it’s not gonna come in the form of any surprise from state government,” Wolf said. 

State Sen. Katie Muth (D-Berks) said people usually have to work and make loan payments to qualify for forgiveness.

“You make it through all these years of paying it and then you get hit with a big tax bill? You know, it’s egregious so I think to be prepared for that is incredibly financially challenging. To make this change, I genuinely believe that this is the Christmas miracle that many have been waiting for,” Muth said. 

The Department of Revenue says the state can do without loan forgiveness tax money since it doesn’t factor into its yearly budget or revenue estimates.

However, the write-offs could still be taxed by local governments.

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