Wisconsin should not tax student loan forgiveness

Star News

Editorials

The Wisconsin state legislature should move quickly to adopt federal guidelines and make student loan debt forgiveness non taxable as income.

Under the program announced by President Joe Biden, for income-qualified borrowers, either $10,000 or $20,000 of federal student loan debt will be forgiven. Wisconsin is one of 13 states that, under current law, will treat the recently announced federal student loan forgiveness as income.

The remaining 37 states comply with federal income tax codes and will not treat the debt forgiveness as income. What this means is unless Wisconsin moves to adopt the federal rules, Wisconsin student loan borrowers will get hit with hundreds of dollars of additional income taxes next spring.

Regardless of how people may feel politically about the federal student loan forgiveness program — and there is a legitimate concern that it does nothing to address the exploding cost of higher education — exempting those benefitting from the program from state income taxes on the forgiven loan amount follows established precedent in Wisconsin and is fundamentally the right thing to do.

In February 2021, Wisconsin lawmakers and Gov. Tony Evers signed a tax bill which allowed taxpayers to exclude from income the forgiveness of debt on federal Paycheck Protection Program (PPP) loan proceeds and deduct expenses paid with PPP loan proceeds that are otherwise deductible. This measure had broad bipartisan support and was the right thing to do for Wisconsin businesses.

What is good for business is good for those who are carrying the burden of college debt. The student loan debt forgiveness program will have a direct benefit on Wisconsin’s economy by freeing up money that can be spent by these borrowers on having children or buying homes, vehicles and other goods and services. All Wisconsin residents will reap the benefits from the sales taxes collected on those purchases.

Beyond this, there is also the reality that Wisconsin is sitting on an ever-increasing stockpile of unspent tax dollars. Wisconsin’s state coffers are currently overflowing with $3.8 billion in surplus funds with no plans on how any of that money will be spent. Advocating for taxation of federal student loans forgiveness solely to siphon more tax dollars from the economy and into an obscenely bloated state surplus is punitively mean-spirited.

Taxing student loan forgiveness will also further drive young people from the state. This will put Wisconsin school districts, counties, municipalities and private sector employers at a competitive disadvantage to other states in recruiting professionals to fill needed positions.

Gov. Tony Evers has stated he will include the exemption in the 2023-2025 budget proposal. Given the politics at play and Evers’ far from certain political future, the legislature should move rapidly now to follow its own precedent and do the right thing for Wisconsin taxpayers, employers and student loan borrowers.

The Wisconsin legislature should take action this fall to adopt the federal guidelines and make the student loan forgiveness non-taxable.