Some forgiven federal student loans again count as income, and Louisiana and Mississippi residents could see the steepest tax increases, according to a new report from a nonprofit borrower advocacy group.
Federal student loan borrowers on income-driven repayment (IDR) plans can have their remaining debt canceled after 20, 25 or 30 years.
That forgiven debt had been exempt from federal income tax since 2021, but Congress let the policy expire at the end of last year. Other programs, like Public Service Loan Forgiveness, remain free from federal taxes.
Protect Borrowers' analysis looked only at federal taxes and found they could more than triple for a typical family in Louisiana and Mississippi — the largest percentage increases in the country.
That’s largely because incomes in those states are below the national median and, in Louisiana, borrowers have larger balances.
The report says the average amount forgiven under IDR plans in Louisiana is nearly $55,300, versus about $49,700 nationally. It’s the fourth-highest in the country, behind only D.C., Georgia and Maryland, and about $5,600 above the national average.
Protect Borrowers estimates a typical family of four in either Louisiana or Mississippi could pay more than $7,000 in additional federal taxes and lost tax credits.
Alabama ranks seventh in the analysis, which found that a married couple with two children earning the state’s median income and receiving the state’s average amount of debt forgiveness could see their federal tax bill more than double.
At the low end, Protect Borrowers estimates that nearly 77,000 people across all three states could be impacted over the next decade.
“At the exact moment when borrowers should be receiving long-awaited relief, they will be hit with an unprecedented tax bomb, and many will be forced to trade their student loan debt for tax debt,” the report said.
The group is calling on Congress and state lawmakers to stop taxing canceled student loans.
Louisiana and Alabama followed the federal exemption, and Mississippi did not. Now that it has expired, borrowers in all three states will likely owe state taxes on forgiven IDR debt.
This story was produced by the Gulf States Newsroom, a collaboration between Mississippi Public Broadcasting, WBHM in Alabama, WWNO and WRKF in Louisiana and NPR.
