Student loan debt relief recipients in CA will not pay taxes on amounts forgiven, says Newsom

California Governor Gavin Newsom (D) announced this week that student loan borrowers in the state who qualify for federal student loan relief under President Biden’s plan will not be burdened with state taxes on their forgiven loan amounts.

“Californians who get student debt relief shouldn’t be hit with taxes for it. This will provide up to $1.3 billion in tax relief for more than 3.5 million Californians,” Newsom said.

He also asked the California legislature to prepare in advance to implement loan forgiveness in the Golden State without the taxes. “I look forward to working closely with the legislature to get this done through early action.”

Newsom estimates the break in taxes on student debt relief will save California borrowers a total of $1.3 billion. The state has an estimated 3.5 million student loan borrowers, including 2.3 million Pell grant recipients who would qualify for up to $20,000 each in forgiveness under Biden’s plan. 

Loans forgiven under the plan will not be taxed at the federal level, but each state is required to take its own action in order to prevent its laws from implementing state taxes on forgiven student loans for borrowers who live there.

According to the statement issued by Governor Newsom’s office on Saturday, individual borrowers in California will “save on average hundreds of dollars in state taxes, and could even save as much as $1,860” by not being subject to state taxes on their forgiven loan amounts.