Michigan isn’t taxing forgiven student loans

LANSING, Mich. (WILX) - Michiganders who get part of their student loans forgiven won’t have to pay state income taxes on it.

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

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

Pettway is one of 1.3 million people across Michigan eligible for student loan forgiveness. She’s getting more than $80,000 forgiven.

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

Normally the IRS treats forgiven debt as taxable income. That rule is temporarily waived under the American Rescue Plan.

It means federal loans forgiven between 2021 and 2025 aren’t taxed federally. Now, Michigan is doing the same to help people like Pettway.

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

That’s exactly why Lt. Governor Garlin Gilchrist announced the state isn’t collecting taxes on forgiveness during a round table at Lansing Community College.

“We also recognize this loan forgiveness is an accelerated program, a resource to be invested in people,” said Lt. Gov. Gilchrist.

“The tax is not something you can spread out over 20 or 30 years like you can your loan payments. So this tax would come due this tax year, which would make a high burden for those students,” said Ryan Fewins-Bliss, Michigan College Access Network executive director.

Pettway said she’s excited to be able to move on from her debt.

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

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

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

It said the loans to be forgiven six weeks after someone applies.

People who make less than $125,000 a year are eligible for forgiveness.

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