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Originally Published: Aug 31, 2022
Originally Published: Aug 31, 2022 Last Updated: Aug 31, 2022 5 min read
Photo illustration of graduates
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Student loan borrowers in a handful of states could wind up having to pay hundreds of dollars in taxes on student debt forgiven under President Joe Biden's new plan.

Student loan forgiveness is exempt from federal income taxes, thanks to a clause in last year's American Rescue Plan. Most states either follow that new federal rule or don't have an income tax.

But several states' tax codes do count canceled student loans as income, according to an updated analysis from the Tax Foundation. For some borrowers, that could hike their state tax bills by up to $985 for $10,000 of forgiven loans — and ostensibly more for those borrowers who received Pell Grants and are eligible for $20,000 worth of forgiveness.

Five states are currently on track to tax student debt forgiveness, says Jared Walczak, vice president of state projects for the Tax Foundation. Those states are Arkansas, Minnesota, Mississippi, North Carolina and Wisconsin.