On August 24, 2022, President Biden announced the forgiveness of up to $20,000 in federal student loan debt for eligible borrowers. This forgiveness will apply to many federal student loan borrowers. Pell Grant recipients are eligible for up to $20,000 of forgiveness, and all other federal student loan recipients are eligible for up to $10,000 in student loan forgiveness, if they fall under certain income limitations. These income limitations are $125,000 for individual taxpayers and $250,000 for married couples and heads of household.

There have been many questions regarding the tax implications of this debt forgiveness as it is ordinarily taxed to the taxpayer receiving forgiveness. Below are the critical components of the federal and state tax implications as of November 2022.

Note – As of November 2022, the application portal is open, but debt discharge is paused due to a recent court order.

Federal Tax Implications

While debt forgiveness is typically treated as taxable income to the taxpayer, President Biden signed the American Rescue Plan in 2021, which exempts canceled student debt from taxation through 2025. As a result of this legislation, taxpayers will not owe federal income tax on the student loan forgiveness they receive.

State Tax Implications

While most states follow the federal government in excluding debt forgiveness. The following four states do not – Minnesota, Mississippi, North Carolina, and Indiana. Unless legislative action is taken to the contrary, the forgiven student loan debt will be taxed as income for these states.  Many additional states are still reviewing their stances on this issue.

Frequently Asked Questions

Q: What student loans qualify for forgiveness?

A: All federal student loans taken out before June 30, 2022, will be forgiven, up to $20,000 for Pell Grant recipients and up to $10,000 for all other types of federal student loans as long as the taxpayer falls within the income limitations previously mentioned.

Q: How do I apply for student loan forgiveness?

A: For some borrowers with income on file with the Department of Education, their student loans will be automatically forgiven. For most borrowers, however, there will be an online application form that must be completed. To be notified when the forgiveness application is available and any other updates on the student loan forgiveness subject, you can apply for updates from the Department of Education.

Note – As of November 2022, the application portal is open, but debt discharge is paused due to a recent court order.

Q: How long do I have to apply for student loan forgiveness?

A: The application for student loan forgiveness will be open until December 31, 2023.

Q: Will I receive a 1099-C for this canceled debt?

A: When most debt is canceled, the person for whom the debt was canceled will receive a tax form 1099-C. However, this will be different for student loan debt forgiven through President Biden’s recent announcement. In a notice released by the IRS on December 21, 2021, direct lenders and student loan servicing agencies were told not to file or issue a 1099-C for student debt forgiven between 2021 and 2025. Since some states are still taxing canceled student loan debt, taxpayers should notify their tax professional about the student loans forgiveness so it can be treated properly on state income tax returns for 2022.

Q: How can I receive live updates on how states intend to treat student loan forgiveness?

A: You can receive updates on which states have and have not chosen to include this forgiveness in income, as well as which states are still undecided on how to treat the income here. We recommend staying informed on this information since state treatment of this income will likely change and evolve over the next few months.

Q: What if I do not want to receive debt relief?

A: For some borrowers, debt relief will be automatic, however borrowers can opt out of debt relief for any reason by contacting their loan servicer.


If you’re unsure or have questions about how this change in student loans will impact you this filing season, please contact an Adams Brown trusted advisor.