Death, taxes, and student loans?

Posted on March 25th, 2013

Ben Franklin once said that the only things that are certain are death and taxes. In today’s world, you can add student loans to that list.

Too good to be true

Imagine finding out that all your student loans were forgiven and you don’t have to pay your lender another cent. You’d be ecstatic, right?

happy woman

But come tax season, your nightmare begins. Many students whose loans are forgiven don’t realize they’ll have to pay taxes on the forgiven debt–to the tune of thousands of dollars or more, depending on the loan balance. One woman was shocked to find she owed the IRS $31,000 after having her $91,000 student debt canceled due to total disability.

That’s because some types of forgiven debt are treated as taxable income. Lenders must report cancelled debts of $600 or more to the IRS on Form 1099-C: Cancellation of Debt.


Generally, student loan forgiveness is excluded from income if the forgiveness is contingent upon the student working for a specific number of years in certain professions. But if your loans are canceled due to disability or other reasons, you’ll have to pay taxes on the amount.

If you’re thinking about participating in a student loan forgiveness program or getting your loan balance canceled, it’s important to consider all of the tax implications. Check out this overview of how different types of student loan forgiveness are taxed.

Category: Student Loans & Repayment

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