You received the money originally, you never paid it back, therefore it is your taxable income now. It would never be taxable income to the cosigner unless the cosigner received half the money in the beginning.  

The purpose of a co-signer is to obtain the loan.   If you fail to pay the loan then the lender can go after the co-signer for the payments.   Since it seems that the lender has not done that and is forgiving (canceling) the debt, the co-signer is no longer involved at all.    They are canceling *your* debt, not the co-signers debt.