Certain Student Loan Forgiveness Now Tax-Free

As part of the new economic stimulus law (the American Rescue Plan), Congress changed the rules on the income tax impact resulting from student loan forgiveness. Typically, any loan forgiveness results in taxable income. However, the new law provides that forgiveness of certain types of student loans during 2021-2025 will be tax-free.

Which Loans Qualify?

Not all student loans qualify for this tax-free exclusion. The new rule applies only to loans made by federal, state or local governments, or by an eligible educational institution, and to certain private education loans. It does not apply to borrowers with private student loans or those with commercially held Federal Family Education Loan (FFEL) debt.

When and How Much?

Ironically, the new law doesn’t actually...