Is there a tax on student loan forgiveness? If you live in these states, the answer is yes.

Millions of Americans may not have to pay federal student loans anymore. But if you live in a state that has decided to tax forgiveness, you should prepare, experts say. 

Even though the Supreme Court struck down President Joe Biden’s broad student-debt cancellation plan, borrowers who were defrauded or misled by their colleges or had their payment counts adjusted had those debts forgiven. All those people are exempt from federal taxes on their forgiveness under the American Rescue Plan Act (ARPA).

Most states followed suit and didn't impose taxes on student loan cancellations. But in the handful that do plan to tax forgiveness, borrowers should get ready so they're not surprised this tax season or worse, face an audit. 

Medora Lee | USA TODAY

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