Student Loan Forgiveness and Taxes – What You Need to Know

If you achieved student loan forgiveness and live in these states, you may have to pay taxes on that amount. Keep an eye out for another tax form in the mail!

During 2023, more than 800,000 federal student loan borrowers received forgiveness. In February 2024, 153,000 additional borrowers received student loan forgiveness. Yes, this is cause for celebration, but don’t forget – two things in life are certain – and one of them is taxes! 

student loan forgiveness and taxes

What led to Student Loan Forgiveness in 2023?

  • The College Cost Reduction and Access Act of 2007 introduced Income-Driven Repayment (IDR) plans for federal student loans. Legislation expanded existing income-based repayment options and introduced new plans aimed toward making student loan repayment more manageable. Plans capped monthly payments based on borrower income and family size. The Government introduced multiple plans to help borrowers handle their student loan debt:
  • Pay As You Earn (PAYE): PAYE became available for new borrowers on December 21, 2012.
  • Income-Based Repayment (IBR): The IBR plan for new borrowers was introduced on July 1, 2014. However, there was an earlier version of IBR available before this date.
  • Revised Pay As You Earn (REPAYE): REPAYE was introduced on December 17, 2015, expanding on the PAYE plan to make it available to more borrowers.


These plans became essential tools for managing federal student loan debt, tailoring their repayment based on their financial circumstances. One of the factors that made these programs so attractive? After making on-time payments for the plan term, the remaining debt would be wiped out, or forgiven.


Millions of American federal student loan borrowers enrolled in one of these programs. By now, thousands of individuals should have achieved student loan forgiveness. Due to the mismanagement of servicers and the failure of the Department of Education, only 32 borrowers received forgiveness by 2023.

The investigation by the National Consumer Law Center

The NCLC investigated complaints and found that hundreds of thousands of borrowers were eligible for immediate student loan forgiveness. President Biden took action based on the results of the investigation into the Department of Education. Over 800,000 people received notice that the balance of their federal student loans was forgiven at the beginning of 2024.

What are the ups and downs of student loan forgiveness?

pros and cons of student loan forgiveness

Depending on where you live, the answer could be, “yes.” Let’s address the upside, first. 

Most people who received student loan forgiveness, regardless of their repayment plan, individuals already making payments won’t have to pay federal taxes on the forgiven amount. This is due to a provision in President Biden’s American Rescue Plan. The site states that, “According to the IRS, student loan amounts forgiven under PSLF are not considered income for tax purposes.”

BUT … Here’s the downside:

Although the balance of your forgiven federal student loans are not taxed at the federal level, several states view canceled debt as income and tax it that way. If you live in these states, you likely will have to pay taxes on the forgiven amount:

  • Arkansas
  • Wisconsin
  • Indiana
  • North Carolina 
  • Mississippi

Although this information was accurate as of Fall 2023, you should check with your tax accountant or financial advisor to check the current requirements in your state. If you have received IRS Form 1099-C, make sure you understand what information it holds and plan accordingly.

What is IRS Form 1099-C?

Lenders and creditors use IRS Form 1099-C, “Cancellation of Debt,” to report the cancellation or forgiveness of debt to the Internal Revenue Service (IRS) and the debtor. It is not specific to student loans and student loan forgiveness. If a creditor forgives or cancels a debt for $600 or more, the law requires that they issue a Form 1099-C to report the forgiven amount to the IRS and the debtor.

Unless an exception or exclusion applies, you (the debtor) must report the amount of canceled debt listed on Form 1099-C as income on your state and federal income tax return. Some common exclusions include:

  • Certain types of student loan forgiveness
  • Bankruptcy
  • Insolvency
  • Qualified principal residence indebtedness


If you receive a Form 1099-C, review it carefully and talk with your tax professional to ensure you understand your tax implications.

What if you didn’t receive IRS Form 1099-C?

If you received student loan forgiveness but did not receive an IRS form 1099-C, consider talking with a tax professional. The form is only required for forgiven debt higher than $600. If you were very close to paying off your debt, it’s possible you don’t need it. However, it’s better to be safe and address it now so that it doesn’t come back to haunt you in a few years.

Can a Student Loan Lawyer help me?

Qualified student loan lawyers have current information on the latest legislation at both the federal and state level. They can help you determine how much you received in forgiveness and how to take action if you should have received an IRS Form 1099-C.

If you haven’t received student loan forgiveness yet, but the required monthly payments cause financial distress now that the pause is over, a student loan lawyer can help. Analyzing your situation might result in lower monthly payments (potentially, as low as $0.00), removing some of the pressure on your finances. Contact a student loan lawyer today and take some of the stress out of tax season.

When searching for student loan help, look for the Student Loan Law Workshop Graduate seal. It indicates that the attorney has trained with Joshua Cohen, The Student Loan Lawyer who has practiced student loan law exclusively, since 2008.