Taxes on Student Loan Forgiveness: What Will I Owe?

Student loan forgiveness can feel like a huge relief, but it may also come with a surprise tax bill. Whether you'll owe taxes depends on when your loans are forgiven, the forgiveness program you qualify for, and, in some cases, the state you live in.

This guide explains when student loan forgiveness is taxable and what steps you can take now to prepare.

Current student loan refinance rates

Student loan forgiveness will be taxable again

The American Rescue Plan Act of 2021 temporarily made forgiven student loan debt exempt from federal income tax from Jan. 1, 2021, through Dec. 31, 2025. That exemption ends in 2026. If your loans are forgiven or discharged after that date, the forgiven amount will be treated as taxable income, which could leave you with a significant federal tax bill.

Will I have to pay taxes on student loan forgiveness?

The IRS typically considers forgiven debt taxable income because it’s a financial gain. However, forgiven federal student loan debt is currently not taxable through the end of 2025. Loans forgiven in 2026 and beyond may be taxable, depending on the type of forgiveness program you qualify for. 

For example, amounts forgiven under Income-Driven Repayment (IDR) plans, such as Saving on a Valuable Education (SAVE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR), will all be subject to federal taxes starting in 2026. 

Loans forgiven under Public Service Loan Forgiveness (PSLF), the borrower defense to repayment, and the closed school discharge programs aren’t considered taxable income, so you won’t owe federal income taxes on them even after the current rules expire. 

Under the “One, Big, Beautiful Bill Act” signed in July 2025, student loans discharged because of death or total and permanent disability will no longer be treated as taxable income starting in 2026.

Other exceptions to cancellation of debt income include:

• Debt canceled in a Title 11 bankruptcy case
• Debt canceled to the extent you’re insolvent (meaning your debts exceed your assets)

What your tax bill could look like

Without a tax break, the rate you’ll pay on your forgiven debt depends on your tax bracket.

For example, let’s say you’re in the 22% tax bracket and have $50,000 of student loan debt forgiven. This doesn’t mean you’ll owe $11,000 ($50,000 x 22%) in federal income taxes because tax brackets don’t apply a single tax rate to all of your income. Instead, they’re tiered, and each income tier gets taxed at a slightly higher marginal tax rate.

To see how much you might owe, review the IRS tax brackets for 2025, which will be the most recent set available before the exemption expires.

How to plan for a student loan tax bomb

Many borrowers don’t realize their forgiven student loan debt may be taxable until they file their tax returns and get stuck with a big tax bill or don’t get the refund they were expecting. The surprise tax bills are often referred to as “student loan tax bombs” and can cause financial difficulties if you don’t plan for them.

If you’re worried you might be on the hook for an incoming tax bomb, there are a few steps you can take:

• Research your loan forgiveness program rules: Look up the loan forgiveness program under which your debt was canceled on the U.S. Department of Education’s Federal Student Aid website. The website has a lot of information on the tax consequences of different loan forgiveness programs.
• Work with a tax professional: If the details still aren’t clear, work with a tax professional familiar with your state's laws. They can help you determine whether your loan forgiveness qualifies for an exception and whether student loan debt forgiveness is taxable in your state.
• Plan to pay the tax due: If you’re responsible for paying taxes on your canceled debt, start setting aside the cash to do so. Pay as much as you can when you file your tax return to minimize underpayment penalties and interest, and apply for an IRS payment plan for the remaining balance. If you request a payment plan online and can pay off the balance in 180 days or less, there’s no setup fee.

Taxes on forgiven private student loans

Private student loans don’t qualify for federal forgiveness programs, but some private lenders do offer loan discharge options for situations like disability and death. 

The good news is that the American Rescue Plan Act also exempts canceled private student loan debt from federal income tax. However, this may not extend to state taxes, where forgiven debt might still be taxable. It’s a good idea to consult a tax professional to understand your unique tax situation.