When debt is cancelled or forgiven, the general rule under IRS Topic 431 is that the cancelled amount counts as taxable income (unless an exception applies). For student loans: If you receive forgiveness of a federal student loan (or discharge) and no exception applies , the amount may be reported on a Form 1099-C and taxed . However, most forgiven student loans from 2021-2025 are excluded from federal income tax. After December 31, 2025, the exclusion will expire, and forgiven amounts may again be taxable. However, there are some programs that are always tax free federally. And when it comes to state taxes and student loan forgiveness , there are a whole lot of exceptions.
