Newsom explains how discharged student loans are now exempt from state income tax-He recently signs a new Assembly Bill


Student loans have become a hot topic, especially since the onset of the pandemic. With many students struggling to make ends meet and repay their loans, the government has intervened to provide relief. Recently, the governor of California signed a bill that exempts forgiven student loan debt from state income tax. This move is a significant step towards helping students struggling with debt.

The bill is "Assembly Bill 111 (AB-111) Personal Income Tax Law: exclusion: student loan debt: discharge of fees: higher education emergency grants." It exempts forgiven student loan debt and other pandemic-related financial aid for students from state income tax.

In addition, it aligns with President Joe Biden's plan to offer debt relief to specific borrowers based on their income. This is an excellent change. Many students have found it challenging to make loan payments due to the financial strain caused by the pandemic.

The Supreme Court of the United States (SCOTUS) cast doubt on President Joe Biden's plan during oral arguments in February. However, the court has not yet ruled on the challenge to determine its future. Courts have issued orders blocking the student debt relief program, but the Biden-Haris administration seeks to overturn the orders.

Nevertheless, California Governor Gavin Newsom recently signed AB-111. As a result, student loan debt discharged due to the COVID-19 pandemic is exempt from state taxes. This is to provide financial relief to those affected by the economic hardships caused by the pandemic.

View the full bill text below.

AB-111 grants Californians a much-needed tax break. Californians qualify for this tax break if they have student loans or fee payments discharged during taxable years 2022 through 2026. The discharge must have been due to economic hardships caused by the COVID-19 Pandemic.

The bill further clarifies that any fees waived by community colleges in 2022-2026 will not be taxable. In addition, students receiving grant money for pandemic-related expenses from 2020-2027 will not have to pay state income taxes on those funds.

Ultimately, the bill excludes specific amounts from a person's gross income for taxable years between 2022 and 2027. This includes tuition, room and board, and student fees. Fees may be discharged per applicable state or federal law if a student has unpaid fees to an educational institution. This applies to all fees.

This exclusion would apply to any amount discharged by an educational institution or through a state or federal program. Furthermore, any amount discharged by a private loan provider is also excluded from a person's gross income. However, this only applies if the discharge was part of a state or federal program.

The signing of AB-111 is considered a positive development. It will help students who are facing financial difficulties due to the pandemic. These students can now benefit from debt relief and other assistance.


Do you think AB-111 is a step in the right direction toward addressing the student debt crisis, and should other states follow California's lead?


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