COVID-19 Relief Law - Student Loans Tax Free?

The new Congressional stimulus bill passed by the U.S. Senate eliminates an obstacle to broad-based student debt cancellation, the tax treatment of any discharged debt. 

The provision says that anyone whose student loans are discharged through 2025 will not face tax consequences. Debt cancellation is usually treated as taxable income, so without this, if someone were to have some or all of their student debt forgiven, it would be accompanied by a tax bill.

Right now, borrowers who have their student loans discharged, with a few exceptions, incur a tax bill on the cancelled debt. If the bill passed by Senators on Saturday becomes law, any student debt wiped away through the end of 2025 wouldn’t be counted as income for tax purposes. 

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