Michigan does not tax canceled student loans

LANSING, Mich. (WILX) — Michiganders who get some of their student loans forgiven won’t have to pay state income tax.

The state announced Wednesday that the loan forgiveness will not be considered taxable income.

“It opens up a lot of opportunities for me,” Brandi Pettway said.

Pettway is one of 1.3 million people in Michigan eligible for student loan forgiveness. She gets over $80,000 forgiven.

“I dropped out of school because the debt was so big and I didn’t want it to keep growing. Now I feel like I can go back and complete my education,” Pettway said.

Normally, the IRS treats canceled debt as taxable income. This rule is temporarily lifted as part of the US bailout.

This means that federal loans canceled between 2021 and 2025 are not federally taxed. Now Michigan is doing the same to help people like Pettway.

“I’m very grateful for that because I didn’t want to be penalized for something that’s going to help me,” Pettway said.

This is exactly why Lt. Gov. Garlin Gilchrist announced that the state was not collecting pardon taxes during a roundtable discussion at Lansing Community College.

“We also recognize that this loan forgiveness is an accelerated program, a resource to invest in people,” Lieutenant Governor Gilchrist said.

“The tax is not something that you can spread out over 20 or 30 years like you can for your loan repayments, so that tax would be due this tax year, which would be a heavy burden on those students,” said Ryan Fewins-Bliss, executive director of the Michigan College Access Network.

Pettway said she was thrilled to be able to pay off her debt.

“I have five classes left, so it’s very important for me. It’s a personal goal of something I want to accomplish that I started,” Pettway said.

People will have to apply for student loans to be forgiven.

The White House expects the application process to begin next month.

He said the loans were to be canceled six weeks after someone applied for them.

People who earn less than $125,000 per year are eligible for the rebate.

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