Credible takeaways
- The IRS usually treats canceled debt as taxable income, with certain exceptions for student loans.
- Forgiven student loan debt is exempt from federal income taxes through Dec. 31, 2025.
- Without a tax exemption, the rate you’ll pay on forgiven student debt depends on your tax bracket.
For many student loan borrowers, 2023 was a good year. After more than three years of no payments or interest on federal student loans, the Biden-Harris administration approved a total of 3.6 million borrowers for nearly $132 billion in loan forgiveness.
If you happen to be one of those 3.6 million people, you might be wondering if you have to pay taxes on student loan forgiveness. While canceled debt is usually taxable income, chances are you don’t have to worry about paying taxes for now — at least not on your federal tax return.
Here’s what you need to know.
Temporary changes to tax rules for 2024
Some recent changes to tax laws could impact your tax filings if you had student loan debt forgiven in the past year or hope to in the near future.
The American Rescue Plan Act of 2021 made forgiven student loan debt exempt from federal income taxes between Jan. 1, 2021, and Dec. 31, 2025. This means if you have student loan debt forgiven or discharged during this time frame, you won’t owe federal income taxes on the amount forgiven.
However, some states may still count forgiven or discharged student loan debt as taxable income. According to the Tax Foundation, Indiana, North Carolina, and Mississippi have announced they will tax forgiven student loan debt. Some states have specifically stated they will not tax student loan debt, and the decision is still up in the air in some states.
Tip:
It’s a good idea to work with a tax adviser familiar with your state’s laws to see if you should plan to pay taxes on your forgiven student loans.
Will I have to pay taxes on student loan forgiveness?
Typically, the IRS considers forgiven debt to be 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 (and assuming lawmakers don’t extend the moratorium).
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.
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)
| Will I be federally taxed? |
|---|
Income-driven repayment (IDR) | |
Public Service Loan Forgiveness (PSLF) | |
Teacher Loan Forgiveness (TLF) | |
Perkins Loan cancellation | |
| |
Total and permanent disability discharge | Yes for discharges received before Jan. 18, 2018, and after Dec. 31, 2025 |
False certification discharge | |
| |
Borrower defense to repayment discharge | |
Certain states will impose income tax on forgiven or discharged federal student loans. Make sure to check your state’s tax laws to see if this applies to you.
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.
Based on the 2024 tax brackets for single filers, you would owe:
- 10% on the first $11,600 of income: $1,160
- 12% on the next $35,550 of income: $4,266
- 22% on the last $2,850 of income: $627
Your total tax bill on the $50,000 of canceled student loan debt would be $6,053.
Plan for taxes on forgiven student debt
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 your debt was canceled under 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 who is familiar with the laws in your state. 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.
Advertiser DisclosureLoan Amounts
$1,000 up to 100% of the school-certified cost of attendance
Overview
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Overview
Ascent offers several unique borrowing options that you don’t typically see with private lenders. In addition to traditional student loans for undergraduate, graduate, and medical programs, college juniors and seniors may qualify for its Outcomes-Based Loan — which doesn’t require established credit or a cosigner. Instead, Ascent reviews alternate factors such as your school, major, and GPA to determine your eligibility.
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Overview
Powered by Cognition Financial, Custom Choice offers student loans for undergraduate and graduate students starting at $1,000. You can borrow up to $99,999 per year with a total aggregate limit of $180,000.
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Custom Choice doesn’t charge application, origination, prepayment, or late fees. It also lets you pause payments through forbearance if you qualify for its natural disaster or unemployment protection programs.
Loan amounts
$1,000 to $99,999 per year (lifetime limit of $180,000)
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Loan Amounts
$1,000 up to 100% of school-certified cost of attendance
Overview
Sallie Mae offers the Smart Option Student Loan to undergraduate and graduate students. You can borrow up to your school-certified cost of attendance and apply just once annually to get the funds you need for the entire academic year. Plus, it may be easy to get reapproved for your future years of study — undergraduates have a 97% approval rate when they return to Sallie Mae with a cosigner.
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Loan terms
10 to 15 years for Smart Option Student Loan; up to 15 years for law school and bar study loans; up to 20 years for medical school, medical residency, dental school, dental residency, and health professions loans
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$1,000 up to school-certified cost of attendance
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Must be a U.S. citizen or permanent resident enrolled in an eligible program. Noncitizens may qualify by applying with a cosigner who’s a U.S. citizen or permanent resident.
Loan Amounts
$1,001 up to 100% of school certified cost of attendance
Overview
INvested is an Indiana company that offers affordable student loans exclusively to state residents. Loans are available to Indiana students and parents who can meet income and credit requirements, or who have an eligible cosigner. Borrowers can borrow as little as $1,001 or as much as the school-certified cost of attendance minus other aid.
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Loan amounts
$1,001 minimum, up to the school certified cost of attendance
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Loans are available to Indiana residents only. Borrowers must have a FICO score of 670 or higher, a 30% maximum debt-to-income ratio or minimum monthly income of $3,333, continuous employment over two years, and no major collections or defaults in recent years. Borrowers who do not meet income or credit requirements can apply with a cosigner.
Loan Amounts
$1,500 up to school’s certified cost of attendance less aid
Overview
Massachusetts Educational Financing Authority (MEFA) is a not-for-profit lender that offers low-cost undergraduate and graduate school loans to students nationwide. While only fixed-rate loans are available, interest costs may be lower than what you see with other private loans.
While you can apply with a cosigner to lock in the best rate possible, removing that cosigner later may be tough. Only one repayment plan allows cosigner release, and you must make four years of consecutive on-time payments and meet other credit and income requirements to qualify.
Loan amounts
$1,500 minimum up to school-certified cost of attendance
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Must be a U.S. citizen or permanent resident, enrolled at least half time at a degree-granting, nonprofit institution, and must maintain satisfactory academic progress. Must have no history of default on an education loan and no history of bankruptcy or foreclosure in the past 60 months. Applicants who can’t meet the minimum credit and income requirements may apply with a cosigner.
Loan Amounts
$1,000 to $350,000 (depending on degree)
Overview
Citizens offers a variety of student loan types, including loans for undergraduates, graduate students, and parents. Perhaps the most unique feature of Citizens student loans is the option for multiyear approval. If you qualify, you can apply once and borrow for future years with a more streamlined process that only involves a soft credit inquiry.
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Loan terms
5, 10, or 15 years for student loans; 5 or 10 years for parent loans
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Must be a U.S. citizen or permanent resident enrolled at least half-time in a degree-granting program at an eligible institution. International students can apply with a cosigner who’s a U.S. citizen or permanent resident.
Loan Amounts
$1,000 up to cost of attendance
Overview
Education Loan Finance (ELFI) is a division of Tennessee-based SouthEast Bank owned by Education Loan Finance, Inc., a non-profit whose mandate is to provide access to higher education. ELFI launched in 2015 and offers undergraduate, graduate, and parent private student loans as well as student loan refinancing.
ELFI student loans and refinance loans are available to residents in all U.S. states including Puerto Rico. Borrowers can benefit from no application, origination, or prepayment fees. ELFI also offers flexible repayment terms and competitive rates, however there’s no cosigner release option and the lender doesn’t offer any discounts.
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$1,000 - Cost of attendance
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A cosigner may not be taken off a loan, but the borrower can apply for a new loan without their cosigner.
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All 50 states as well as Washington DC and Puerto Rico.
Meet the expert:
Janet Berry-Johnson
Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.
