Student loan forgiveness and taxes: What you need to know

What is student loan forgiveness?

Student loan forgiveness, cancellation, and discharge are often used interchangeably. When a student loan is forgiven, canceled, or discharged, the borrower is relieved from their obligation to repay part or all of their student loan debt. Under certain conditions, the forgiven amount may be considered income and subject to income taxes.

Federal student loan forgiveness

Listed below are some of the common forgiveness programs for federal student loans. Eligibility is based on several factors such as type of occupation or service, the length of time served in a role, and other circumstances. For full program details, visit StudentAid.gov.

Federal Forgiveness Program	Overview
Public Service Loan Forgiveness	This may be available to borrowers who have a government job or are employed by a non-profit organization. If eligible, your remaining federal loan balance could be forgiven after making a certain number of qualifying monthly payments.
Teacher Loan Forgiveness	Full-time educators who teach in a low-income school or educational service agency for five complete and consecutive academic years may be eligible for federal student loan forgiveness.
Perkins Loan Cancellation and Discharge	If you work full-time in an eligible public service role and have a Perkins Loan, you may be able to get some or all of the federal loan amount canceled. Public service roles include teachers, firefighters, military service members, nurses, public defenders, and more.
Closed School Discharge	Your federal student loan may be discharged if your school closes while you’re enrolled or soon after you withdraw.
Discharge Due to Death or Total and Permanent Disability	In these extreme circumstances, your federal student loan may be discharged.

Federal Forgiveness Program

Overview

Public Service Loan Forgiveness

This may be available to borrowers who have a government job or are employed by a non-profit organization. If eligible, your remaining federal loan balance could be forgiven after making a certain number of qualifying monthly payments.

Teacher Loan Forgiveness

Full-time educators who teach in a low-income school or educational service agency for five complete and consecutive academic years may be eligible for federal student loan forgiveness.

Perkins Loan Cancellation and Discharge

If you work full-time in an eligible public service role and have a Perkins Loan, you may be able to get some or all of the federal loan amount canceled. Public service roles include teachers, firefighters, military service members, nurses, public defenders, and more.

Closed School Discharge

Your federal student loan may be discharged if your school closes while you’re enrolled or soon after you withdraw.

Discharge Due to Death or Total and Permanent Disability

In these extreme circumstances, your federal student loan may be discharged.

Private student loan forgiveness

Many private student loan lenders do not have forgiveness programs. However, some lenders may be forgive loans in the event of death or permanent disability. Contact your private student loan lender for more information.

Will I be taxed on federal student loans that are forgiven?

Federal student loans that are forgiven based on employment do not count as taxable income. This means you do not have to pay a federal income tax on the amount that is forgiven and it applies to the following programs:

Public Service Loan Forgiveness

Teacher Loan Forgiveness

Perkins Loan Cancellation

Discharge Due to Death or Total and Permanent Disability

Borrowers may be taxed on federal student loans that are canceled or discharged for other reasons such as:

A school closure

A school falsifying the borrower’s loan eligibility

A school failing to pay a required loan refund

The borrower filing for bankruptcy

However, every state is different. Some states might exclude debt forgiveness from being taxed—others may not. Currently, the following states treat forgiven student loans as earned income:

Arkansas

California

Indiana

Minnesota

Mississippi

North Carolina

Wisconsin

How to prepare if you owe taxes on student loan forgiveness

Calculating your tax liability can be tricky, especially if you’ve had some or all of your student loans forgiven. Consult a tax professional who understands federal and state laws and whether canceled student loan debt is considered income. They can help clarify your tax obligation. Here’s a starter list of questions to ask:

Will the forgiven/canceled amount be considered income?

Will the forgiven/canceled amount be taxed? If so, how much?

Will this amount be included in my tax return for the year the loan was forgiven?

Will this amount be added to my total taxable income for the year?