Did you know that under normal circumstances, you pay income taxes on canceled or forgivenstudent loan debt?
This is a pretty big deal, asstudent loan forgivenesscan be tens or sometimes hundreds of thousands of dollars.
However, if you recently had your student loans forgiven, youre in for some good news.
Your forgiveness likely wont be taxed like it would be in a normal tax year.
But act fast this provision isnt likely to last beyond December 31, 2025.
What are the Typical Rules for Taxes and Student Loan Forgiveness?
Loans forgiven through PSLF do not count as taxable income even after December 31, 2025.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Before student loan forgiveness, your tax bill would have been $6,380.
Thats an extra $4,400 you would have owed to the IRS.
Quite a big difference!
This exercise gives you an idea of just how big a jump it can be in theory.
The only difference is that your federal student loan was forgiven through PSLF instead of an income-driven repayment plan.
In 2021, the Biden administration passed the American Rescue Plan (ARP).
It does, however, apply to any jot down of student loan.
It can be a federal loan forgiveness program like forgiveness through an income-driven repayment plan.
Or, it can also be a loan that your private lender decides to forgive or cancel.
But thats a conversation for another day.
Your salary is $40,000.
Because its 2025, you wont be taxed on the extra $80,000.
Your taxable income before the standard deduction is still only $40,000.
But lets say that same amount was forgiven through PAYE in January of 2026.
Thats the $40,000 salary plus the $80,000 in forgiven student loan debt.
In most states, the amount of your forgiven student loan debt is not taxable at the state level.
She also points out that some states have their own student loan debt forgiveness or repayment assistance programs.
These programs may come with different rules on taxability than federal student loans.
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She is a regular contributor to The Penny Hoarder.
When you log into your bank account, how do your savings look?
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
