When My Student Loans Are Forgiven Will I Have to Pay Tax on That?


Dear Steve,

I’m 70 years old with almost $250k in federal student loans.

I’ve been on IBR and have a $0 payment so far and am on SS.

When my IBR tenure is completed (25 years), will the amount that has been “forgiven” be considered Capital Gains, and thus will I have to pay taxes on that amount?



Dear Carol,

The very specific answer to your question is maybe.

But the most likely answer is it does not sound as if you have much in the way of assets. In that case, your forgiven debt liability would only extend through the amount you are solvent. There is an IRS Form 982 that would eliminate any remaining liability.

American Rescue Plan

President Biden signed into law the American Rescue Plan that included a special provision for tax-free forgiveness of student loans in 2021 to 2025.

“Special rule for discharges in 2021 through 2025.– Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) after December 31, 2020, and before January 1, 2026.”

So if your 25-year window was up before the end of 2025, then there would be no tax due for forgiveness.

At Best It Is a Moving Target

You can see how there is no direct or simple answer to a perfectly great question.

There is no guarantee Congress will extend tax-free forgiveness and I have no crystal ball to even take a guess on what they will do.

But Here is What I Suggest

I think there are many more important issues to worry about in life and this will not be much if any, of an issue for you when the time comes.

I would not waste a moment of concern about a potential tax liability since it might be dealt with in a few different ways.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Damon Day - Pro Debt Coach

Steve Rhode

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