Wolf admin. exempts student loan relief from state taxes

Pennsylvania workers will not have to pay state income tax on student loan relief they receive from two debt forgiveness programs, Gov. Tom Wolf announced Friday.

Joined by Sen. Katie Muth, D-Montgomery, Wolf said that relief from the federal Public Service Loan Forgiveness and the Pennsylvania Student Loan Relief for Nurses programs are untaxed, hoping to save those eligible from paying thousands of dollars in state taxes.

“The point of student loan forgiveness programs for public servants is that these are people who have chosen jobs, often in lower-paying fields, because they want to make a difference,” Wolf told reporters during a press conference. “It’s wrong to take what should be a blessing and turn it into just another burden.”

The change is likely to benefit thousands of teachers, social workers, military members, and healthcare workers across the state.

“Pennsylvanians have some of the highest student loan debt in the country — and when these students are finally eligible to see some of their loan forgiven through public service, they should not be burdened with a surprise tax bill,” Muth said. 

At the federal level, student loan forgiveness is not considered taxable income. The majority of states do not tax student loan relief. However, the state Department of Revenue considered loan forgiveness taxable income, often surprising workers with a costly tax bill, Wolf and Muth said.

They explained that a Pennsylvanian with $50,000 in student loans through the Public Service Loan Forgiveness Program could see a $1,535 state income tax bill in the same year.

“They don’t have thousands of dollars lying around to pay a one-time tax bill,” Wolf said.