The short answer: most borrowers pay no tax on forgiven student debt under current rules

The Biden administration's student debt relief programs — the SAVE plan income-driven repayment forgiveness and the one-time payment pause relief — do not create a tax bill for borrowers whose loans are forgiven. This is because Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, which suspended the tax on forgiven student debt through December 31, 2025. Without this suspension, forgiven debt normally counts as taxable income on your federal return.

However, this tax break is temporary. When the suspension ends on January 1, 2026, any debt forgiven after that date will be taxable unless Congress extends the suspension or passes new law. The amount you owe in tax depends on how much debt is forgiven and your tax bracket that year.

Key Takeaways

  • Debt forgiven through Biden's programs is not taxable in 2024 or 2025 because of the CARES Act suspension, which runs through December 31, 2025.
  • Starting January 1, 2026, forgiven student debt will be treated as taxable income unless Congress extends or changes the law.
  • When the suspension ends, you will report forgiven debt as income on your federal tax return, and the amount you owe in tax depends on your tax bracket that year.
  • State income tax treatment varies — some states tax forgiven debt and some do not, even when federal tax does not explore.
  • You will receive a Form 1099-C from your loan servicer if debt is forgiven, which you use to report the amount on your return.

What happens to forgiven debt after the CARES Act suspension ends

When the federal tax suspension expires on December 31, 2025, the IRS will treat forgiven student debt as cancellation of debt income. This means the amount forgiven counts as income you received that year, even though you did not receive cash. If you have $10,000 in debt forgiven in 2026, the IRS treats it as if you earned an extra $10,000 that year.

Your tax bill depends on your tax bracket. If you are in the 22 percent federal tax bracket, $10,000 in forgiven debt would add roughly $2,200 to your federal income tax. If you are in the 12 percent bracket, it would add roughly $1,200. The exact amount also depends on whether the forgiven debt pushes you into a higher bracket or affects other tax credits you claim, like the Earned Income Tax Credit.

You will receive a Form 1099-C from your loan servicer showing the amount of debt forgiven. You report this amount on your federal tax return for the year the debt was forgiven, typically on Schedule 1 (Form 1040) as "other income."

State income tax on forgiven student debt

State tax treatment varies widely and does not automatically follow federal rules. Some states tax forgiven debt the same way the federal government does. Others exclude it from state taxable income even when it is taxable federally. A few states have no income tax at all.

You need to check your state's rules for the year debt is forgiven. States that currently do not tax forgiven student debt include California, New York, Illinois, and several others, but these rules change and vary by program. Your state tax return instructions or your state revenue department website will tell you whether to report forgiven debt as income. If you move between states in the year debt is forgiven, you may owe tax to more than one state.

How to prepare for taxes after 2025

If you expect debt forgiveness after 2025, start planning now. Set aside money in a savings account to cover the tax bill, or adjust your withholding so more tax is taken from your paycheck throughout the year. The amount to set aside depends on how much debt you expect to be forgiven and your tax bracket.

You can use an online tax calculator to estimate your tax bill. Enter your expected income for the year plus the amount of forgiven debt, and the calculator will show your estimated federal tax. Then multiply your federal tax rate by the forgiven debt amount to get a rough estimate of the additional tax you will owe.

If you have other income sources or deductions that change your tax situation, the estimate may be off. A tax professional can give you a more precise number based on your full financial picture.

What the SAVE plan means for forgiveness and taxes

The SAVE (Saving on a Valuable Education) plan is an income-driven repayment option that forgives remaining debt after 20 or 25 years of payments, depending on whether you borrowed for undergraduate or graduate school. Under current law, debt forgiven through SAVE is not taxed through the end of 2025. Starting in 2026, any SAVE forgiveness will be taxable unless the law changes.

SAVE also offers forgiveness for borrowers who borrowed $12,000 or less and have been repaying for 10 years. This forgiveness is also tax-free through 2025 and taxable after that date. The one-time payment pause relief announced in 2023 is also covered by the tax suspension through 2025.

The one-time payment pause relief and taxes

The one-time payment pause relief allowed borrowers to have up to $20,000 in debt forgiven (if they received a Pell Grant) or up to $10,000 (if they did not). This relief was blocked by the Supreme Court in 2023 and has not been implemented. However, the SAVE plan's built-in forgiveness for borrowers with smaller loans serves a similar purpose and is covered by the same tax suspension.

If the one-time relief is eventually implemented, any debt forgiven through it will not be taxed in 2024 or 2025 under the CARES Act suspension. After 2025, it would be taxable unless Congress acts.

What to do if Congress extends the tax suspension

Congress could extend the CARES Act suspension beyond December 31, 2025, or pass new law making forgiven student debt permanently tax-free. If that happens, you would not owe tax on debt forgiven after 2025. Watch for announcements from Congress and the Department of Education as the suspension date approaches. Your loan servicer may also send updates about tax treatment when forgiveness occurs.

If you are close to receiving forgiveness, you can contact your loan servicer to ask whether they have information about potential changes to the tax rules. They cannot predict what Congress will do, but they can tell you the current law and when your forgiveness is expected to occur.

Frequently Asked Questions

Do I owe taxes on debt forgiven in 2024 or 2025?

No. The CARES Act suspended the tax on forgiven student debt through December 31, 2025. Any debt forgiven during 2024 or 2025 is not taxable. This applies to all Biden administration forgiveness programs, including SAVE plan forgiveness and the one-time payment pause relief if it is implemented.

What if my debt is forgiven after December 31, 2025?

Debt forgiven on or after January 1, 2026, will be taxable as income unless Congress extends the suspension or passes new law. You will report the forgiven amount on your federal tax return and may owe federal income tax. State tax treatment depends on your state's rules.

Will I receive a Form 1099-C for forgiven debt?

Yes. Your loan servicer will send you a Form 1099-C showing the amount of debt forgiven. You use this form to report the forgiven amount on your tax return. The servicer sends the form to you and the IRS, so the IRS will know about the forgiveness.

Can I deduct the taxes I owe on forgiven debt?

No. Forgiven student debt is treated as income, not as a deductible expense. You cannot reduce your taxable income by claiming the forgiven debt as a loss or deduction. However, you may be able to claim the student loan interest deduction on interest you paid before forgiveness, up to $2,500 per year.

Does my state tax forgiven student debt?

It depends on your state. Some states do not tax forgiven debt even when the federal government does. Others tax it the same way. Check your state revenue department website or your state tax return instructions for the year debt is forgiven to find out your state's rule.