Will I Have to Pay Taxes If My Student Loan Debt Is Forgiven?

Education debt relief is typically taxed as income, so any loan amount that's forgiven is added to your adjusted gross income.

The fate of student loan forgiveness remains up in the air -- especially under a Trump presidency. But if your student loan debt was wiped out last year, you might be on the hook for paying taxes on your forgiven debt.

Here's everything you need to know about how student loans can affect your tax return.

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Will I have to pay taxes if my student loan debt is forgiven?

It depends on where you live.

Education debt relief is typically taxed as income, so any loan amount that's forgiven is added to your adjusted gross income: If you make $50,000 and have $20,000 in loans erased, your adjusted income that year is $70,000. However, thanks to a provision tucked into the American Rescue Plan, federal taxes on student debt forgiveness are being waived through 2025. So no one will owe federal taxes on forgiven student loans next tax season.

You may have to pay state or local taxes on that relief, though.

States that tax student loan debt relief

Most states have conformity with the federal tax system, which means they follow the IRS' lead when it comes to tax regulations. Since the federal government is not currently taxing student loan relief, these states won't either. But there are 13 states that don't have conformity with federal guidelines. Of those, five states tax student loan forgiveness: Arkansas, Indiana, Mississippi, North Carolina and Wisconsin. Here are the rules and exemptions for each state, and how much you might owe.

Note, the below calculations do not include any tax deductions or credits you might be eligible for.

Arkansas

Arkansas has a graduated state income tax that ranges from 2% to 3.9%, depending on how much you make each year.

If you earned $50,000 in 2024 and had $10,000 forgiven in student loans, for example, your taxable income would total to $60,000. This would put you in the 3.9% tax bracket, and would mean you'd owe approximately $390 in state taxes on your student debt.

Indiana

Residents of Indiana are on the hook for paying both state and local taxes for forgiven debt. There are no exemptions for those enrolled in the Public Service Loan Forgiveness program.

Indiana has a flat state tax rate of 3.05%. Local taxes vary by county.

If you received $10,000 in forgiven student loans in 2024, you would be on the hook for $305 in state taxes next year. If you live in Indianapolis (Marion County) you would also pay 2.02% in county income tax, or $202. This would bring your tax total to $507 for your forgiven debt.

Mississippi

Mississippi also has a progressive income tax rate. In 2024, you'll pay 0% for the first $10,000 you earn, and 4.7% in state income tax on earnings above that. So, if you make $50,000 in 2024 and receive $10,000 in student loan debt, you'd be taxed on $60,000 total. You'd effectively owe $470 on your forgiven student loan debt.

North Carolina

If you received student loan forgiveness and live in North Carolina, you'll pay a flat state income tax rate of 4.5% on your canceled debt for 2024. That means you'd owe approximately $450 in taxes for your loan debt.

There are some exemptions to this tax law: Borrowers enrolled in the Public Service Loan Forgiveness program will not be taxed on forgiven loan balances in North Carolina.

Wisconsin

Student loans that were forgiven in 2024 are subject to state taxes in Wisconsin. However, there are some exceptions. If your loans were forgiven under the Public Service Loan Forgiveness program, teacher loan forgiveness program, National Health Service Corps Loan Repayment plan, or if you meet total and permanent disability qualifications, you'll be exempt from this tax.

If you receive any other type of student loan forgiveness, you'll be charged between 4.40% and 7.65% in state income taxes. If you made $50,000 in 2024 and received $10,000 in loan forgiveness, you'd be taxed at the 5.3% rate, and would owe roughly $530 in student loan taxes. This could change if you're married and your spouse's income pushes you into a lower or higher tax bracket.

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