Weather or not you will be taxed on students loan forgiveness depends on several factors, including the type of forgiveness program and where you live.

Under the American Rescue Plan Act 2021, any student loan forgiveness (federal or private) is tax-free at the federal level through December 31, 2025

• This includes forgiveness programs like:
• Public Service Loan Forgiveness (PSLF)
• Income-Driven Repayment (IDR) forgiveness
• Teacher Loan Forgiveness1
• Borrower Defense to Repayment
• Closed School Discharge

• If your loans are forgiven after 2025, the forgiven amount may be considered as a taxable income.
• At the federal level unless Congress extend the tax free provision.

• While federal taxes are waived, state taxes vary:
• Some states (e.g., California, Massachusetts and Mississippi) may still tax forgiven student loan amounts as income.
• Other states (e.g., New York, Pennsylvania, and Indiana) conform to federal tax rules and do not tax forgiven student loans.
• Check your state’s tax laws to confirm whether you’ll owe state taxes on forgiven amounts.

• Forgiven private loan amounts may be considered taxable income unless you quality for an exception (e.g., insolvency or bankruptcy).

• PSLF: Always tax-free, even after 2025.
• Disability Discharge: Tax-free if you meet certain requirements.
• Death Discharge: Tax-free for loans discharged due to the borrower’s death.
• Insolvency: If you’re insolvent (liabilities exceed assets) at the time of forgiveness, you may avoid taxes on the forgiven amount.

1. Track Forgiveness Programs: Understand the terms of your forgiveness program and when your loans might be discharged.
2. Consult a Tax Professional: they can help you navigate federal and state tax implications.
3. Plan Ahead: If your forgiven amount is taxable, consider setting aside funds to cover the potential tax bill.

In summary, for now, federal students loan forgiveness is tax-free at the federal level, but state taxes may apply. After 2025, the rules could change, so stay informed!