Your student loan was recently forgiven — hurray! But wait. Do you owe taxes?
As we hurry through yet another tax year, some borrowers may wonder whether their federal student loan forgiveness is tax-free. After all, under the Biden administration, over five million debtors with about $188.8 billion in debt were forgiven.
Biden accomplished this through the American Rescue Plan (ARPA), a law passed during the pandemic, which promised that federal student loans would be "free from taxes" for a while, right? Well, somewhat.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If your federal student loan was forgiven, depending on where you live, you may still be subject to state taxes, and the law that provides for tax-exempt federal student loan forgiveness expires after this year.
Plus, the Trump administration has targeted the PSLF program and, through the GOP's so-called "One Big Beautiful Bill," has enacted several changes that will impact student loans and borrowers.
Read on for more of what you need to know.
Is student loan forgiveness taxed in 2025?
Federally forgiven student debt is not taxable on your federal return through the end of this year. That's because ARPA made federal student loan forgiveness tax-free through 2025.
After that, a forgiven loan will again count toward taxable income on federal returns.
Affected loans may include:
- Pay As You Earn (PAYE) which limits federal student loan payments to generally 10% of a borrower’s discretionary income.
- Saving on a Valuable Education (SAVE) plan, which calculates your loan’s monthly payment amount based on income and family size (currently stalled in court — more on that below).
- Public Service Loan Forgiveness (PSLF), a program that forgives the balance on Direct Loans.
Student loan news under Trump
Parts of the SAVE plan are currently contested in a federal lawsuit. Repealing the plan could mean borrowers will face higher monthly student loan payments if forced to switch to another, more expensive alternative.
Additionally, after 2025, students will again pay taxes on their forgiven federal student loan debt unless Congress acts.
So, where does Trump stand on student loans?
- This month, the Trump administration has proposed a new rule for PSLF that would disqualify organizations involved in activities that have a "substantial illegal purpose." This may include what the administration identifies as illegal immigration, terrorism, or certain medical procedures on minors.
- New borrowers enrolling in July 2026 or later will have just two main federal repayment options: a Revised Standard Plan (fixed payments) and a Repayment Assistance Plan (RAP), which is tied to income and requires up to 30 years of payments before forgiveness.
- Existing income-driven plans are slated for a phase-out, and borrowers will need to transition to a new system by July 2028.
- Starting August 1, 2025, interest will also resume for those enrolled in the SAVE plan.
And that's not all. Earlier this year, Trump called for the end of the Department of Education, which manages federal student loans, among many other things.
Trump argues that the move would cut costs and return control to the states, potentially reshaping education in the U.S. Those on the other side say that eliminating the Department of Education could harm vulnerable students, disrupt funding, and weaken school civil rights enforcement.
While eliminating the department would require congressional approval, Trump could significantly alter its functions through executive actions.
For more information on which programs might be going away and how your taxes will be affected for 2026, check out Kiplinger's report Trump Targets Student Loan Forgiveness: Here’s How Taxes and Repayment Could Soon Change.
Are student loan payments tax deductible?
Yes, the interest portion of your student loan payment may be deductible if you qualify for the student loan interest deduction. Here are a few other ways you may save on student debt:
- Ask your employer about any qualified educational assistance programs or a 401(k) student loan match.
- If you have a 529 account, claim up to $10,000 (lifetime limit) to help pay off college debt.
- Talk to your employer about tax-free student loan repayment assistance.
Student loan debt and state taxes
As mentioned, most canceled student debt is currently exempt from federal tax, but only some states follow that federal law.
As a result, you could be stuck with an unexpected state tax bill for forgiven student loan debt, which could be as high as $1,100 in some states.
Check out your state’s Department of Revenue website to determine if you’ll be taxed on student loan forgiveness, or to see if you're missing out on any state tax breaks.
More on Student Loans
-
Stock Market Winners and Losers of the 'Big, Beautiful' BillDefense, manufacturing and tech should prosper, while health care and green energy stocks face hurdles.
-
I'm 68 and health issues forced me to retire. Should I claim Social Security or use my savings until I'm 70?We asked financial planning experts for advice.
-
What Health Insurance Tax Credits Have to Do With the Government ShutdownTax Credits Previous shutdowns have occurred for various reasons, including border wall funding. But this time, the standoff centers in part on health care and taxes.
-
Florida Residents Could Soon Get Property Tax ReliefProperty Tax The push for a solution to end high property taxes could lead to significant tax cuts in the Sunshine State next year.
-
New Tax Rules: Income the IRS Won’t Touch in 2025Income Taxes From financial gifts to Roth withdrawal rules, here’s what income stays tax-free under the new Trump 2025 tax bill, and some information on what’s changed.
-
Three Popular Tax Breaks Are Gone for Good in 2026Tax Breaks Here's a list of federal tax deductions and credits that you can't claim in the 2026 tax year. Plus, high-income earners could get hit by a 'surprise' tax bill.
-
Tax Brackets 2025 Quiz: How Much Do You Know?Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
Retirees Face a Growing Capital Gains Tax Trap: What's Next?Home Sales A changing housing market and unchanged IRS exclusion amounts can add up to a headache for many homeowners. Will Congress offer a fix?
-
New York Inflation Refund Checks Are Coming Soon: What to Know NowTax Relief Inflation relief checks are on the way for over 8 million New York taxpayers. Here's a full breakdown of who gets a payment and when you may expect yours.
-
Mortgage Refinance in 2025? These Tax Breaks Can Boost Your SavingsTax Breaks Refinancing your mortgage comes with tax implications, but also opportunities to deduct certain expenses on your return.
