More than a million student loan borrowers got debt forgiven in 2024. What to know at tax time
If your student loans were forgiven in 2024, you may be wondering if there are any tax implications
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 Biden administration. While in office so far, President Joe Biden has cleared nearly $180 billion in federal student loans for 4.9 million people. More than 1 million people had their debt cleared in 2024.
If you've had your debt excused last year, here's what 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, said higher education expert Mark Kantrowitz. That means you won't owe anything to Uncle Sam on any federal education debt cleared throughout 2024.
It shouldn't matter under what program the loans were forgiven, be it Public Service Loan Forgiveness, an income-driven repayment plan or Borrower Defense. The Biden administration has delivered most of its relief through one of those avenues.
(In case you aren't familiar: PSLF leads to student debt erasure for certain public servants after a decade of qualifying payments. Meanwhile, IDR plans conclude in debt cancellation after a certain period of payments, typically 20 years or 25 years. And Borrower Defense wipes away the debt for students who've been defrauded by their schools.)
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Even canceled private student debt shouldn't trigger a federal tax bill thanks to the terms of the American Rescue Plan, said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program, based in New York. That law is set to expire Dec. 31, 2025.
Meanwhile, student debt excused in bankruptcy should never be subject to federal or state taxes, Kantrowitz added.
You could owe taxes to your state
Despite the current federal policy on forgiven student debt, it's possible a borrower could still face state taxes.
Currently, a handful of states tax certain kinds of student loan forgiveness, Kantrowitz said. That could be because their state tax code doesn't conform to the federal one or hasn't been updated to reflect the American Rescue Plan.
You'll want to check with your state or a tax professional to learn if your relief triggers any liability.
Many states mirror their student loan forgiveness tax policy on the federal government. As a result, if the American Rescue Plan's provision expires, more states could levy the forgiven debt again, too.
This story originally appeared on: CNBC - Author:Annie Nova
