Does my canceled private student loan debt count as taxable income? It was discharged in October by Discover, due to them discontinuing collection.

[SabrinaD2]

In general, canceled private student loan debt is considered taxable income. However, there are exceptions that may apply to your situation. Here’s a clear and concise explanation:

• General Rule: If your private student loan debt is canceled, forgiven, or discharged, the amount forgiven is typically considered taxable income.
• Exceptions: Under the American Rescue Plan Act of 2021, there is a temporary exclusion for student loan forgiveness. This exclusion applies to loans discharged between December 31, 2020, and January 1, 2026
  • If your loan was discharged within this period, the forgiven amount is not considered taxable income.

TurboTax Help Articles:

• Guide to Debt Cancellation and Your Taxes
• Original Post 

IRS Sources:

• Topic No. 431, Canceled Debt – Is It Taxable or Not?
• Publication 4681 (2024), Canceled Debts, Foreclosures, Repossessions, and Abandonments

[jfeder89]

Hi there!

I just want to confirm. My debt was discharged on October 8, 2024; given that the date falls between December 31, 2020 and January 1, 2026, am I correct that the exception applies to my loans and the canceled debt is not considered taxable income? I live in New York, by the way. 

Thank you for your help!

[MonikaK1]

Yes, loans forgiven during the period of time specified (discharged between December 31, 2020, and January 1, 2026) are not taxable as cancellation of debt.

New York passed legislation in 2023 to conform with the Federal treatment, so it is not subject to New York state tax.

@jfeder89