Make These 4 Key Moves Before Year-End to Unlock Tax-Free Student Loan Forgiveness

Time's running out. The clock on 2025's student debt relief window is ticking—and four strategic maneuvers could shield your forgiveness from the taxman's grasp.

Navigate the Maze Before Midnight

Federal student loan programs hide loopholes most borrowers never see. Income-driven repayment plans, Public Service Loan Forgiveness pathways, and temporary relief provisions create a complex landscape. Miss one deadline, and you're looking at a surprise tax bill that makes your original debt look friendly.

The Four Moves That Matter

First, verify your repayment plan status. Certain IDR plans require annual recertification—skip it, and your payment calculation resets, potentially delaying forgiveness eligibility. Second, consolidate eligible loans before December 31. This move can maximize payment counts under waiver programs still in effect. Third, submit all Public Service Employment Certification forms immediately. Processing delays are the rule, not the exception. Fourth, exploit the temporary tax exclusion on forgiven debt—a provision that treats student loan cancellation as non-taxable income, unlike most other discharged debts. Because nothing says 'relief' like swapping debt paperwork for IRS forms.

The Silent Deadline

These aren't New Year's resolutions. These are financial maneuvers with hard expiration dates. The system won't send you a reminder—it'll just send the bill. Execute these four steps, and you bypass the bureaucratic traps. Ignore them, and you join the millions wondering why 'forgiveness' feels so much like another payment.

Take control now, or let Washington's paperwork machine decide your financial future. Your move.

KEY TAKEAWAYS

• Student loan borrowers who qualified for loan forgiveness in 2025 will not have to pay taxes on their discharged loans.
• Borrowers must have made a certain number of payments and be on an eligible repayment plan to have their loans dismissed.

While the Department of Education has resumed student loan forgiveness, you may still need to complete a few tasks to ensure your loan is dismissed without having to pay federal taxes.

The Department of Education resumed granting student loan forgiveness on most income-driven repayment plans earlier this month. However, there is no confirmed date for when qualifying borrowers will receive their forgiveness. Borrowers who became eligible in 2025 may have to wait until next year to get their paperwork processed and their loan discharged.

Many borrowers have worried they will not receive their forgiveness before a temporary tax rule created by former President Joe Biden ends on Jan. 1, 2026. However, the Department of Education confirmed that if a borrower becomes eligible for forgiveness in 2025, they WOULD not have to pay federal taxes on their discharged loan.

Borrowers should take some steps before the end of the year to ensure they will not be taxed on the forgiveness they achieve in 2025.

Why This Matters to You

Next year, student loan borrowers will be required to pay taxes on their loan forgiveness, which could result in them owing the IRS thousands of dollars. For those who qualified for loan forgiveness in 2025 but have not yet received it, there are steps they can take to ensure they receive tax-free forgiveness.

1. Verify Your Repayment Plan Qualifies for Forgiveness

The Department of Education said it is resuming processing tax-free loan discharges for borrowers under the Income-Based Repayment, Pay As You Earn, and the Income-Contingent Repayment plans.

However, borrowers under the Saving for a Valuable Education are still unable to receive forgiveness. The income-driven repayment plan, also known as SAVE, was created under former President Joe Biden’s administration and is still blocked by ongoing lawsuits.

SAVE borrowers are still in forbearance, where any payments made do not count toward forgiveness. Still, some may have reached the threshold of the number of payments eligible for forgiveness before the forbearance period began. If these borrowers request to be transferred to IBR, ICR, or PAYE by December 31, 2025, their loans will be discharged tax-free.

Borrowers can request a transfer of repayment plans on the Federal Student Aid website.

RELATED EDUCATION

2. Verify Your Payment Count

Borrowers who have made 240 or 300 months of payments by 2025, depending on their repayment plan, qualify for tax-free forgiveness. They can contact their loan servicer to determine how many qualifying payments they have made and if their loan balance is being forgiven.

Here is how many payments you will need to qualify for loan forgiveness, depending on your IDR plan.

Note: Payments made while you were in forbearance or deferment do not count toward qualifying for forgiveness. That excludes time spent in the payment pause during the COVID-19 pandemic.

3. Get Your Paperwork In Order

If you have received any confirmation from your loan servicer or the Department of Education that you will receive tax-free forgiveness, make sure to save the communication.

The Department of Education will base the "effective date of their loan discharge" on when the borrower becomes eligible for loan forgiveness. You can verify with your student loan servicer via email or phone call the amount of qualifying payments you have, and if you have made enough to be eligible for loan forgiveness in 2025.

4. Confirm If You Will Have To Pay State Taxes on Your Forgiveness

Although all borrowers who qualify for time-based student loan forgiveness in 2025 will not have to pay federal taxes on their discharged loans, some states will still tax you. These states include:

Arkansas residents will have to pay state taxes on their loan forgiveness, unless it was granted under the Public Service Loan Forgiveness or total disability provisions.

Indiana taxes loan discharges unless it was under PSLF, Teacher Loan Forgiveness, National Health Service Corps, in the case of total and permanent disabilities, bankruptcy, or the death of a student.

The only loan forgiveness not taxed in Mississippi is if it was canceled under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

North Carolinians will be taxed on their forgiveness unless the loan was discharged due to death or total and permanent disability.

You will have to pay taxes on your forgiveness unless it was given through PSLF, death of a student, total and permanent disability, teacher loan forgiveness program, or the National Health Service Corps Loan Repayment program.