Californians won’t have to pay state taxes on canceled federal student loans

While the Supreme Court mulls the Biden administration’s student loan forgiveness plan, California moved to provide some relief to borrowers who had student loans forgiven during the pandemic.

Part of a slate of budget bills signed into law by Gov. Gavin Newsom earlier this week is legislation exempting Californians from paying income taxes on forgiven federal student loans and some pandemic-era emergency grants.

Several groups are covered by the exemption: community college students who have had unpaid fees forgiven by their schools, anyone who received federal higher education emergency grants and those who took out federal loans and qualify for forgiveness under the Biden administration’s student loan debt relief plan.

One former student says the news is a “huge relief” for him and his family.

“I would be thrilled to know that a massive worry was wiped clean for me,” said Matt Samson, a Huntington Beach resident and college graduate who is awaiting the Supreme Court’s decision on the Biden administration’s student loan forgiveness plan.

“I am appreciative of this opportunity and hope that with the loan cancelation as well as the possible tax exemption, I can better my future financially,” Samson said.

“[The legislation] is necessary to ensure that those most in need of student debt relief are able to access it,” said Sarah Bouabibsa, advocacy manager at community advocacy group Young Invincibles. “While we wish it was tax-exempt forever, it’s a big step toward addressing the student debt crisis.”

Paying income taxes on canceled loans, Bouabibsa said, would place an “undue burden on borrowers.”

In the past, California was one of seven states where residents could be slapped with a tax bill for canceled student loans.