North Carolina residents whose student loans are canceled by the federal government will still have to pay state taxes on the money they would have paid.

The General Assembly could change that, but it won’t, according to Sen. Phil Berger, a Republican from Eden who leads the state Senate.

Canceling student debt is a policy of President Joe Biden’s administration, and therefore of his fellow Democrats. After it emerged that current North Carolina state law means former students still owe taxes — not to Uncle Sam, but to the former North State — Democrats lobbied for a change.

In late August, the State Department of Revenue announced that while the loan cancellation plan exempts borrowers from paying federal taxes on those canceled loans, the same does not apply to state taxes. . A spokesperson for the IRS said the agency would “monitor any further enactments by the General Assembly that may change the imposition of student loan forgiveness in North Carolina.”

Governor Roy Cooper, a Democrat, and State Rep. Brian Farkas, also a Democrat, have proposed a legislative change that appears to be dead in the water.

Berger told reporters Tuesday at the Legislative Building that his chamber would not take him back.

“Student loan forgiveness, number one, is a federal policy that is not backed by any federal law as far as I can see,” he said. “Secondly, if we are going to make this change to our tax policy, to our tax laws, for this type of debt forgiveness, it would be totally unfair to people who have had credit card compromises, where those are taxable, and mortgage compromises, where taxable I think that’s something that I don’t think we need to approach in that way.

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The NC State University Memorial Steeple in Raleigh, North Carolina, shown in a 2021 file photo. Ethan Hyman [email protected]

PPP Comparison

The White House has criticized Republican politicians who oppose the student debt forgiveness plan for providing loan forgiveness under the Paycheck Protection Program. Cooper, too, when seeking a state tax exemption, said this month that legislative leaders “need to find a solution that treats student loan forgiveness the same way they treated forgiving. PPP loan that many of them have received”.

But PPP loans during the coronavirus pandemic were a “completely different situation,” Berger said on Tuesday, saying they were taken out “as a result of the federal government and US government shutting down the economy.” state”, and were federal law.

“In this case, we basically have an executive order from the president,” Berger said before questioning Biden’s authority to grant loan forgiveness in the first place.

According to the North Carolina Department of Revenue, the General Assembly would have to pass a section of the tax code that would include student loan forgiveness as nontaxable income if state leaders wanted to pass a change.

Regarding the state’s tax revenue from these loans, Berger said he always said that when the state got additional money, it could “increase spending to meet any real needs that exist, we can take part of it and we can give part back.

Although the state recorded a revenue surplus of more than $6 billion in 2022, lawmakers did not include any kind of taxpayer rebates or refunds in the budget, as has been proposed in the past. This year’s budget bill, which consists mostly of minor changes since budgets are two-year spending plans, included significant increases in savings funds.

The 170 seats in the General Assembly are to be filled in November. A new legislative session begins in January.

For more on North Carolina government and politics, listen to the Under the Dome political podcast from The News & Observer and NC Insider. You can find it at https://campsite.bio/underthedome or wherever you get your podcasts.

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Dawn Baumgartner Vaughan covers North Carolina state government and politics at The News & Observer. She previously covered Durham and received the McClatchy President’s Award, the NC Open Government Coalition Sunshine Award and several awards from the North Carolina Press Association, including for politics and investigative journalism.

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