Tax Implications of Federal Student Loan Forgiveness in 2024

If your federal student loans were forgiven in 2024, you may be wondering if there are any tax implications.

Many borrowers have benefited from education debt cancellation under the current administration. President Joe Biden has cleared nearly $180 billion in federal student loans for 4.9 million people, with over 1 million people having their debt cleared in 2024.

If you’ve had your debt forgiven last year, here’s what you need to know at tax time.

No Federal Taxes on Relief through 2025

The American Rescue Plan Act of 2021 made student loan forgiveness tax-free at the federal level through the end of 2025. This means that you won’t owe anything to the federal government on any federal education debt forgiven in 2024. This applies to all forgiveness programs, including Public Service Loan Forgiveness, income-driven repayment plans, and Borrower Defense.

Even private student debt forgiveness should not trigger a federal tax bill thanks to the provisions of the American Rescue Plan Act. This law is set to expire on December 31, 2025. Additionally, student debt forgiven in bankruptcy is not subject to federal or state taxes.

You Could Owe State Taxes

Despite the federal tax exemption on forgiven student debt, some states may still tax certain types of student loan forgiveness. You should check with your state or a tax professional to see if your relief triggers any state tax liability.

Many states align their policies with the federal government, but if the American Rescue Plan Act provisions expire, more states may start taxing forgiven debt as well.