Student Loan Discharge due to borrower defense in Indiana

[Im_justpeachy]

We received a student loan discharge due to borrower defense. This was not something we applied for; rather, it was provided by the DOE based on the college attended. In Indiana, discharged student loan debt due to borrower defense may be taxable. According to the Indiana Department of Revenue website taxation of these types of discharge very. How can I determine if our discharge will be taxed at the state and local level?

[SabrinaD2]

It depends. In Indiana, the taxability of discharged student loan debt due to borrower defense varies based on specific circumstances. According to the Indiana Department of Revenue, while some discharged student loans are taxable, there are exceptions.

To Determine Taxability

Review the Indiana Department of Revenue website: see table below and check the Indiana Department of Revenue's page on student loan forgiveness for detailed information and any updates on the taxability of different types of student loan discharges.

Let me know if additional information is needed

[gudgel89]

It says borrower's defense varies in picture above. How do we know what the variables are? We need more clarity. It says you can not call them at IN.gov and to ask a tax professional. How does the tax professional find out this specific information for their client? Thanks!

[AmyC]

If you fall under the tech student or or college went out of business categories, then it is not taxable. Otherwise, it is.

Note: ITT students who had their debt discharged do not have to pay federal, state, or state/local income taxes (IRS Rev. Proc. 2020-11). In addition, loans discharged pursuant to the settlement in Sweet v. Cardona will not be required to be added back in determining Indiana adjusted gross income.

[gudgel89]

So does a fraudulent & misconduct school fall under that category? Thanks for your help

[DaveF1006]

It depends on the school. To get your loans discharged, you would apply for borrowers defense here.

[gudgel89]

I do have a borrower’s defense discharge loan from last May for Art institute due to fraudulent & misconduct. So if ITT is not required to pay state taxes than I was curious about Art Institutes as well.