As outlined in his 2025 fiscal-year budget, President Joe Biden aims to make tax-free student loan forgiveness at the federal level permanent, following its enactment through the American Rescue Plan Act of 2021. Advocates, including Betsy Mayotte from The Institute of Student Loan Advisors, support this move, citing the significant stress borrowers face over potential tax bills. Before this provision, canceled student loan debt was taxed at the borrower’s income tax rate, potentially resulting in hefty federal tax bills, as estimated by higher education expert Mark Kantrowitz. While some forgiveness plans are already nontaxable, the implications of federal tax rules on forgivable student debt are crucial. However, regardless of federal policy changes, borrowers may still be liable for state taxes on forgiven education loans.

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