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.
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.
[Stay on top of all the new stimulus bill developments – Sign up for the Kiplinger Today E-Newsletter. It's FREE!]
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.
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.