If a tax break is good for N.C. corporations, don't treat student loans differently
Published September 8, 2022
By the numbers:
- 1 million: That’s about how many people in North Carolina – half younger than 35 -- currently carry debts from student loans.
- $37,700: The average student loan debt.
- $10,000: The amount ($20,000 for those with Pell Grants) President Joe Biden’s ordered forgiven from student loan debts held by individuals who earn less than $125,000 annually.
- 20%: The portion of average student loan debt that would be forgiven.
While those numbers may not go as far as many would like to address higher education affordability -- a postsecondary education system that has seen tuition skyrocket three-fold in the last 30 years – it is still a helpful step for many of the state’s education debt holders.
Astonishingly, unless the legislature acts, North Carolina is going to force these same folks to pay from $500 to $1,000 in personal state income tax. While the federal government isn’t going to charge income tax for the loan forgiveness, state legislators failed to adopt the same exemption for state taxes. “Therefore, student loan forgiveness excluded pursuant to (federal Internal Revenue Code) IRC 108(f)(5) is currently considered taxable income in North Carolina. The Department of Revenue is monitoring any further enactments by the General Assembly that could change the taxability of student loan forgiveness” the department said in a statement last week.
This is a state legislature that’s never seen a corporate tax cut it didn’t embrace. It wasted little time to link to federal tax codes to exempt those businesses from state taxes on millions they got in federal Paycheck Protection Program (PPP) dollars.
No one should buy the political spin of the likes of North Carolina Sen. Thom Tillis, who took to Twitter to say: "This is a slap in the face to middle and working-class Americans already struggling with high inflation who will now have to pay off the debt of higher earners." Tillis didn’t offer the same critique for his big-business friends who got their big federal aid and tax exemptions.
Still, the most significant action that should be taken is a close examination of what students are being charged in the first place, along with abuses students and the loan program have suffered at the hands of some for-profit higher education operations.
North Carolina’s Constitution proclaims: “The General Assembly shall provide that the benefits of The University of North Carolina and other public institutions of higher education, as far as practicable, be … free of expense.”
Education, as the state’s founders clearly saw when they wrote the Constitution, was critical to the state’s civic and economic well-being. They saw it as a responsibility – and obligation – to provide as broadly as possible both access to a quality basic education as well as the additional benefits of higher education.
The General Assembly must act, immediately, to extend the personal tax exemption to those who will benefit from the federal cut in student loan debt.
Even more significantly, it should embark on an effort that fulfills the state Constitution’s promise of a higher education that is “free of expense” on all campuses.