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What Biden's student loan forgiveness means for your taxes

A tax expert weighs in on how Biden's student loan forgiveness plan affects borrowers' taxes.

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Editor's Note: This post was updated to reflect President Biden enacting federal student loan forgiveness on Aug. 24, 2022.

Since President Joe Biden's first day in office, federal student loan borrowers have been eager to see if and when he will follow through on his campaign promise to cancel $10,000 of loans per borrower as part of his Emergency Action Plan amid the ongoing pandemic. On Aug. 24, 2022, he enacted federal student loan forgiveness for up to $20,000 per borrower.

So how does this affect your taxes come next year?

Below, we break down the latest on President Biden's sweeping student loan forgiveness, plus more on the implications of student loan forgiveness on borrowers' taxes.

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Where Biden's student loan forgiveness currently stands

On Aug. 24, 2022, President Biden announced widespread federal student loan forgiveness for millions of borrowers. Eligible borrowers fall below the income levels of $125,000 for individuals and $250,000 for families and can receive the following:

  • Up to $20,000 of student debt cancellation for Pell grant recipients
  • Up to $10,000 of student debt cancellation for most other non-Pell borrowers

This also includes extended forbearance (i.e. the repayment freeze) until the end of 2022, so those who still have federal student loan payments after accounting for the forgiveness will not have to make payments until the beginning of 2023.

This move also includes a revamp of the income-driven repayment plan system for undergraduate loans. Monthly payments are being reduced from 10% of monthly income to 5%, along with other tweaks that will lower payments for those on income-driven repayment plans.

However, forgiveness and forbearance doesn't affect any private student loans that are outstanding. If you do have a private student loans, consider refinancing with a lender like SoFi or Laurel Road to get a lower interest rate and better payment terms.


  • Eligible borrowers

    Undergraduate and graduate students, parents, health professionals

  • Loan amounts

    $5,000 minimum (or up to state); maximum up to cost of attendance

  • Loan terms

    Range from 5 to 15 years; up to 20 years for refinancing loans

  • Loan types

    Variable and fixed

  • Co-signer required?


  • Offer student loan refinancing?

    Yes - click here for details

Terms apply.

Laurel Road Student Loan Refinancing

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency/fellowship loans, plus special pricing and reduced rates for health-care professionals (physicians, dentists, optometrists and physician assistants)

  • Loan types

    Variable and fixed

  • Variable rates (APR)

    From 5.49%

  • Fixed rates (APR)

    From 5.44%

  • Loan terms

    5, 7, 10, 15, 20 years (but also offers any term below 20 years, subject to underwriting criteria)

  • Loan amounts

    For bachelor's degrees and higher, minimum $5,000; for eligible associate degrees in the health-care field, up to $50,000 in loans for non-ParentPlus refinance loans

  • Minimum credit score


  • Minimum income


  • Allow for a co-signer


Terms apply.

What Biden's student loan forgiveness would mean for borrowers' taxes

In March 2021, Biden signed the American Rescue Plan into law, which included a provision that all student loan forgiveness is tax-free.

While there may not be any applicable federal income taxes to student debt wiped away from forgiveness, there is still the potential to owe income tax to your state based on your forgiven balance. If that is the case, you may consider putting some money away for tax season.

But in other cases, forgiven debt is typically taxable.

"Generally, when a debt is forgiven, student loans or otherwise, the amount forgiven represents taxable income in the year it is written off," Steven Rossman, CPA and shareholder at Drucker & Scaccetti, a Philadelphia-based accounting firm focusing on taxation, tells Select.

As an example, Rossman shows how federal student loan forgiveness of $10,000 would have traditionally been taxed prior to Biden's tax update.

Say as a federal student loan borrower, you have $10,000 of your loans canceled in 2022. This means that $10,000 would be added to your taxable income, under what's called "Cancellation of Debt (COD)" income, and you would presumably receive a Form 1099-C for 2021 as documentation.

Then, when you go to file your 2022 tax return (in April of 2023), you will have $10,000 to report as COD income. If you are, for example, in the 20% federal tax bracket, this will result in an additional tax of $2,000 ($10,000 x 20%), which will be due in April of 2023 when 2022 taxes are filed. (Tax rates will vary by individual.)

"The good news is that the borrower doesn't have to pay back $10,000, but the bad news is that they would owe $2,000 for taxes," Rossman says.

When student loan forgiveness is tax-free

Before Biden signed the American Rescue Plan into law, there were only certain exceptions that apply as to whether or not student loan forgiveness can be taxed. Finaid.org says that the forgiveness may be excluded from taxable income if it is contingent upon the borrower working for a specific period of time in a certain profession, such as with Public Service Loan Forgiveness (PSLF). Additional exceptions to taxable canceled debt can be found on the IRS website.

Rossman had speculated prior to Biden's tax update that the unprecedented circumstance of the pandemic may have meant that student loan borrowers would see additional exceptions set in place.

"As we've seen from loan forgiveness in the Paycheck Protection Program (PPP), the loans forgiven under the PPP are not taxable to business owners, if the loans are used for eligible business expenses," he says. "Perhaps this will set precedent for the taxability of student loans that are forgiven."

Bottom line

Student loan forgiveness in 2022 will not increase your federal taxable income, thanks to the latest American Rescue Plan that makes all student loan forgiveness tax-free. You may be on the hook for state tax, however.

Now that student loan forgiveness is underway, it's best to readjust your budget and allocate more towards your emergency fund, pay down other forms of debt and invest for the future.

Catch up on Select's in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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