Here’s one more question to add to the mix: will states consider student loan debt forgiveness a taxable event? In many states, the answer could be yes.
As a general rule, a discharge of indebtedness counts as income and is taxable, as my colleague Will McBride explains. Under § 9675 of the American Rescue Plan Act (ARPA), however, the forgiveness of student loan debt between 2021 and 2025 does not count toward federal taxable income. States which follow the federal treatment here will likewise exclude debt forgiveness from their own state income tax bases. But, for a variety of reasons, not every state does that. There are at least six relevant interactions with the Internal Revenue Code (IRC) for purposes of the treatment of student loan debt cancelation. States can: