Forgiven Student Loan Debt Will Be Tax-Free

President Joe Biden’s $1.9 trillion stimulus package lays the groundwork to forgive some student loan debt.

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A small but significant provision in the stimulus package signed by President Biden will temporarily exclude forgiven student loans from taxes, a move that could make it easier for Biden to forgive some student debts.

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Student Loan Forgiveness Won’t Increase Your Tax Bill

President Biden campaigned on a pledge to forgive $10,000 in student loan debt, but it was unclear whether the forgiven loans would be taxable. Ordinarily, with some exceptions, if a student loan is canceled, forgiven, or discharged for less than the amount you owe, the amount of the canceled debt is treated as taxable income in the year the cancellation occurs.

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Federal student loan borrowers in income-driven repayment plans are eligible to have the balance of their loans forgiven after making payments for 20 to 25 years.

Tax Relief for Cancelled Student Loan Debt Also Includes Private Student Loans

The tax relief isn’t limited to federal student loans. If your private lender forgives some or all your student loan debt, you won’t have to pay taxes on those forgiven loans, either.

The Tax Relief on Cancelled Student Loan Debt is Temporary

Unless Congress extends it, the tax relief on student loan debt cancellation expires at the end of 2025.

Emma Patch
Staff Writer, Kiplinger's Personal Finance

Emma Patch joined Kiplinger in 2020. She previously interned for Kiplinger's Retirement Report and before that, for a boutique investment firm in New York City. She served as editor-at-large and features editor for Middlebury College's student newspaper, The Campus. She specializes in travel, student debt and a number of other personal finance topics. Born in London, Emma grew up in Connecticut and now lives in Washington, D.C.