Wisconsinites who receive student loan forgiveness may face a surprise charge when filing their tax returns next year.
Under current state law, Wisconsin is one of four states that taxes money returned under federal student loan forgiveness.
Wisconsin lawmakers have signaled mixed reactions toward federal and state student loan tax legislation, leaving Wisconsin students with forgiven debts uninformed they may have to pay taxes on them.
Assembly Speaker Robin Vos, R-Rochester, told The Daily Cardinal on Oct. 17 that tax exemptions on student loan forgiveness are not “even viable right now, because I don’t think people are getting their loans forgiven.”
Vos also noted the Legislature will not take up a bill “until we see what happens” from Congress.
Wisconsin SB 389, a bill initially introduced on Sept. 11, 2023 by Sen. Howard Markelin, R- Spring Green, and co-sponsored by Rep. Terry Katsma, R-Oostburg, sought to create changes made to the Internal Revenue Code by federal acts including the American Rescue Plan Act of 2021 and the Infrastructure Investment and Jobs Act.
“Senate Bill 389 made a large number of changes to bring Wisconsin tax codes in line with the federal tax code,” a policy worker under Sen. Kelda Roys, D-Madison, told the Cardinal. “SB 389 federalizes our tax code to match Wisconsin in almost every way with the exception of student loan forgiveness.”
In Wisconsin, the amount of debt forgiven from an income-driven repayment plan is considered gross income and is taxed. But at a federal level, the amount of debt forgiven is not taxable as modified by the American Rescue Plan Act, according to the Wisconsin Department of Revenue.
Rep. Deb Andraca, D-Whitefish Bay, told the Cardinal students would “probably not” be aware of having taxes on their student loans in Wisconsin.
“Students who have some of their loans forgiven in the federal loan forgiveness program from the Biden administration are going to be paying taxes on that in the state of Wisconsin, and I don't think that's right,” Andraca said.
Andraca said there were two attempts to get tax exemptions on student loans. Roys offered the exemption as an amendment to the Senate, then Andraca offered it as an amendment to the Joint Finance Committee, according to Andraca.
“Both times Republicans voted against that tax exemption, which, in general, Republicans are very in favor of reducing tax burdens. And so the other question is, why aren't you in favor of reducing the tax burden on students?” Andraca said.
Andraca told the Cardinal she is worried the bill would prevent students from living in the state, increasing the labor shortage.
“We have a demographic problem, the state is aging. We should be doing everything we can to welcome students to start their careers and to live here long term,” Andraca said.
She said the Senate may offer it as a standalone bill as well.
Loan repayments were put on hold in 2020 by the Trump administration due to the pandemic. And the Biden administration prolonged the hold, originally set to expire in 2022, by one year.
The challenge persisted when Congress faced a possible government shutdown after House Republicans grappled over federal spending.
White House Communications Director Ben LaBolt told student media in September that a government shutdown would halt the effort to resume student loan repayments.
Currently, the Biden administration has canceled $117 billion in student loan debt for more than three million borrowers, and an estimated four million borrowers are enrolled in the Saving on a Valuable Education (SAVE) plan which alleviates debt based on income and family size rather than their loan balance, according to LaBolt.
Additionally, the U.S. Department of Education is working to require colleges to disclose information about financial aid and prohibit colleges from withholding transcripts for courses that receive federal funding.
Editor's note: this article was updated at 11:06 a.m. on Friday, Nov. 3, 2023.
Ava Menkes is the state news editor at The Daily Cardinal. She has covered multiple stories about Wisconsin politics and written in-depth about nurses unions and youth voter turnout. Follow her on Twitter at @AvaMenkes.
