These states are waiving state taxes for federal student loan forgiveness, while others have yet to decide

It's been just over a week since President Joe Biden made the announcement that up to $10,000 worth of federal student loans per borrower — and up to $20,000 for Pell Grant recipients — would be forgiven, effectively freeing more than 20 million student borrowers from their student loan debt.

While this has been good news for many, there are still more details and next steps for borrowers to consider, including contacting your loan servicer to receive a refund for any pandemic-era payments and actually applying for federal student loan forgiveness.

After some confusion regarding whether or not states would count the money saved by student loan forgiveness as taxable income, student loan borrowers in a few more states can also relish in the fact that they'll no longer have this hanging over their heads. With the exception of three states — Mississippi, North Carolina and Indiana — that have decided to levy state taxes on federal student loan forgiveness, and several others that have yet to announce their final decision, in most states, additional state taxes will not be required for those whose federal student loans have been forgiven.

Below, Select breaks down how the states in question are handling state taxes and federal student loan forgiveness, and a few things you can do to reduce your taxable income before the year's end.

Typically, when you have debt discharged, the IRS treats it as taxable income. Since you didn't pay the debt you owed but kept the money that would normally have been sent to a debtor, it is seen as income, which makes it taxable.

With student loan forgiveness, taxes work differently. In March 2021, President Joe Biden signed the American Rescue Plan into law, which included a clause regarding student loan forgiveness saying that any federal student loans that were discharged between 2021 and 2025 would not be considered taxable income — in terms of federal taxes.

That said, as Eric Bronnenkant, certified financial planner, certified public accountant and head of tax at Betterment, tells Select, residents of several states may still be on the hook for state taxes if their state determines the money saved from student loan forgiveness to be taxable income.

It all comes down to the concept of conformity — whether or not a state chooses to conform to federal tax regulations or go its own way thanks to statutes that are already in place — and whether or not non-conforming states have time to update those statutes to conform with the new legislation.

"[37 states] choose to have conformity with the federal tax system, have conformity with specific federal legislation or create their own specific exceptions and exclusions," Bronnenkant said. "There are 13 states where the debt forgiveness may be considered taxable income."

According to Bronnenkant, these states can adjust this for their respective residents through "legislative changes or administrative decisions by state tax authorities."

Changes will be taking place and more information will be released over the coming weeks and months, so in the meantime, keep an eye on your state's tax board's website. Noting that this is an ongoing situation and the following information was accurate as of Sep. 6, 2022, here's where the states which do not have conformity with the federal tax code stand on levying state income on student loan forgiveness:

• Arkansas: Undecided
• Hawaii: Will not levy income tax
• Idaho: Will not levy income tax
• Indiana: Will levy income tax
• Kentucky: Will not levy income tax
• Massachusetts: Will not levy income tax
• Minnesota: Undecided
• Mississippi: Will levy income tax
• New York: Will not levy income tax
• North Carolina: Will levy income tax
• Pennsylvania: Will not levy income tax
• Virginia: Will not levy income tax
• West Virginia: Undecided
• Wisconsin: Undecided

All states not listed above have conformity with the federal tax code, so residents will not be levied state income taxes on student loan forgiveness. According to the Tax Foundation, Arkansas, Minnesota and Wisconsin appear to be "on track" to make student loan forgiveness taxable income.

If you're still unsure if you will owe state taxes on the student loan forgiveness you've received, contact your preferred certified public accountant or a trusted tax service.

Regardless of whether or not your student loan forgiveness ends up being deemed as taxable income, there are still plenty of ways to reduce your taxable income level before the end of the year, all while helping you invest for the future.

If you currently have private student loans, which are not eligible for forgiveness or payment pause, you can still deduct up to $2,500 in interest paid from your taxable income. Additionally, to save some more money in interest payments consider refinancing your private student loans with a lender like SoFi Student Loan Refinancing or Earnest Student Loan Refinancing.

You can also contribute more to your 401(k) retirement plan or traditional IRA, which will reduce your annual taxable income and allow your money to grow over time. A few of our favorite IRA brokerages are:

Next, you could contribute more money to a Health Savings Account, which would allow you to save pre-tax money for qualified medical expenses, or invest the funds in a brokerage account within that Health Savings Account, which would help lower your taxable income for the year. Note, however, that you'll need to have a high deductible health plan in order to enroll in an Health Savings Account.

Lastly, if you have purchased stocks that aren't performing well, you could consider selling them and writing off the loss. This is known as tax-loss harvesting, which essentially means you'd only have to pay taxes on the net profit you made from your investments.

While there are still plenty of details we don't yet know about student loan forgiveness, your best bet in the meantime is to sit tight and start creating your post-forgiveness financial plan, which can include building up your emergency fund, paying off any high-interest debt or opening an IRA to help you invest for retirement. Either way, it's a good idea to have a plan in place so you can avoid spending the windfall of money elsewhere.

Catch up on Select's in-depth coverage of personal finance, tech and tools, wellness and more, and follow us on Facebook, Instagram and Twitter to stay up to date.

* Fixed rates range from 3.99% APR to 10.99% APR with 0.25% autopay discount and 0.125% SoFi Plus discount. Variable rates range from 5.74% APR to 10.99% APR with 0.25% autopay discount and 0.125% SoFi Plus discount. Unless required to be lower to comply with applicable law, Variable Interest rates will never exceed 13.95% (the maximum rate for these loans). SoFi rate ranges are current as of 8/19/26 and are subject to change at any time. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. You may pay more interest over the life of the loan if you refinance with an extended term. Medical/Dental Loan Disclaimer: Fixed rates range from 4.12% APR to 9.99% APR with a 0.125% discount for Doctors and Dentist, and a 0.25% autopay discount and 0.125% SoFi Plus Discount. Variable rates range from 5.87% - 9.99% APR with a 0.125% discount for Doctors and Dentist, and a 0.25% autopay discount and 0.125% SoFi Plus Discount. Unless required to be lower to comply with applicable law, Variable Interest rates will never exceed 13.95% (the maximum rate for these loans). SoFi rate ranges are current as of 4/1/26 and are subject to change at any time. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. These specialized rates are offered to applicants who are physicians or dentists with the following degrees: Doctor of Medicine (MD), Doctor of Osteopathic Medicine (DO), Doctor of Medicine in Dentistry or Doctor of Dental Medicine (DMD), Doctor of Dental Surgery (DDS), Doctor of Optometry (OD), Doctor of Veterinary Medicine (DVM or VMD), Physician Assistant (MPA), Physical Therapy (MTP or DPT). Not available to residents, fellows, or students. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. You may pay more interest over the life of the loan if you refinance with an extended term. Autopay Discount: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly payments as outlined in your loan agreement by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. When the autopay interest rate deduction is added or removed, the next time the loan is re-amortized (quarterly for fixed rate loans; monthly for variable rate loans),the principal balance of your loan will be spread over the remaining loan term, and your monthly payment amount will change. This benefit is suspended during periods of deferment, grace period, or forbearance. Autopay is not required to receive a loan from SoFi. Member Rate Discount: To be eligible for an additional 0.125% interest rate reduction on a Student Loan Refinancing, you must, within 31 days of loan funding, either (1) be a SoFi Plus subscriber, (2) receive an Eligible Direct Deposit into a SoFi Checking or Savings account, or (3) receive at least $5,000 in Qualifying Deposits into a SoFi Checking or Savings account. You must continue to meet at least one of the above eligibility criteria every 31 days to maintain the discount. See the SoFi Plus terms for details on SoFi Plus subscription. For more details on Eligible Direct Deposit or Qualifying Deposits, please see https://www.sofi.com/legal/banking-rate-sheet. Once you become eligible during the initial period, the discount will be removed or reinstated depending on whether the criteria have been met. Each time your loan is re-amortized, your monthly payment amount will change based upon the interest rate that was in place. SoFi reserves the right to modify or terminate this offer at any time for unenrolled participants. You are not required to meet these criteria to be approved for a loan. SoFi Plus Discount: To be eligible to receive an additional (0.125%) interest rate reduction on your Student Loan Refinancing (your "Loan") for enrolling in SoFi Plus, you must enroll in SoFi Plus within 30 days of Loan funding, either by receiving an Eligible Direct Deposit to your SoFi Checking and Savings account, or by paying the SoFi Plus Subscription Fee. Once eligible, you will receive this discount during periods in which you have received Eligible Direct Deposit to your SoFi Checking and Savings Account, or during periods in which SoFi successfully receives payment of the SoFi Plus Subscription Fee. This discount lowers your interest rate but does not change the amount of your regular monthly payment. This discount will be removed during periods in which SoFi determines you have turned off Eligible Direct Deposit to your Checking and Savings account or in which you have not paid the SoFi Plus Subscription Fee. SoFi reserves the right to change or terminate this interest rate reduction offer for unenrolled participants at any time without notice. You are not required to enroll in Eligible Direct Deposit or to pay the SoFi Plus Subscription Fee to be eligible for Loan approval. See what qualifies as an Eligible Direct Deposit here: www.sofi.com/terms-of-use/#slr-discount
Eligible Direct Deposit means regularly recurring deposit of regular income to an Automated Clearing House ("ACH") Network during a 30-Day Evaluation Period (as defined below). Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not generate payments that are detectable by our system. So qualifying direct deposits are those where the student loan refinance discount rate is applied automatically for each month where you have an Eligible Direct Deposit of at least $1,000 per 30-day Evaluation Period. Eligible Direct Deposit does not include transfers between accounts you own, refunds, rebates, reimbursements, stimulus payments, merchant refunds, or payments from person-to-person payment services (such as Venmo). To qualify for the 0.25% interest rate reduction, the direct deposit must be recurring and paid directly into a SoFi Checking or Savings account. For the avoidance of doubt, deposits made via check, cash, or mobile check deposit are not eligible. Direct Deposit eligibility is determined by SoFi's sole discretion. The 30-Day Evaluation Period refers to the period starting on the "Start Date" and ending on the "End Date" set forth on the App Details page of your account, which comprises a period of 30 calendar days (the "30-Day Evaluation Period"). You can access the APV Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking → Checking → APV or (ii) Banking → Checking → APV Details. If you do not qualify for the discount during the initial 30-Day Evaluation Period, your loan will not be eligible for a discount unless you re-qualify in a later 30-Day Evaluation Period. If you qualify during the 30-Day Evaluation Period, the discount will be applied on a going-forward basis only. SoFi Bank determines eligibility. If you have a joint account, each account holder receives Eligible Direct Deposits into your SoFi Checking and Savings account, then you will be eligible for all SoFi Plus benefits, including on accounts you hold in your own name. Federal Loan Disclosure: Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELiIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligiblity. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).