Student Loan Forgiveness is now Tax-Free!

Up until now, if a student borrowed funds for college and couldn’t repay them, that student would be taxed on the amount of any student-loan debt that was forgiven.  This tax-treatment of debt discharge follows a long-standing general tax principal:  taxpayers should pay tax on any realized wealth increases, including those caused by an elimination of personal liabilities (i.e. if a taxpayer borrowed funds and didn’t repay them, that taxpayer was enriched and should pay tax as a result).  The American Rescue Plan Act of 2021 allowed for an exception to this general tax principal and will exclude from income any wealth increase caused by forgiveness of student-loan debt for discharges before 1/1/2026.