US loan forgiveness and discharge
Public service, teaching, disability, closed schools, borrower defence and income-driven forgiveness. What each requires, what it does not cover, and which ones are taxable now that the federal exclusion has expired.
The tax position changed on 1 January 2026
The federal exclusion that made discharged student debt tax-free expired at the end of 2025 and was not extended. Income-driven forgiveness is now taxable income in the year it is discharged. Public service forgiveness, death and disability discharge, closed school discharge and borrower defence are all still excluded.
Federally tax-free
Public Service Loan Forgiveness
The whole remaining balance discharged after 120 qualifying monthly payments while working full time for a government or a qualifying non-profit. Tax-free, and the only forgiveness that still is.
Federally tax-free
Teacher Loan Forgiveness
Up to $17,500 for a highly qualified secondary mathematics or science teacher or a special education teacher, or up to $5,000 for other qualifying teachers, after five complete and consecutive years at a low-income school.
Federally tax-free
Total and Permanent Disability discharge
The whole balance discharged, along with any TEACH Grant service obligation, on evidence of total and permanent disability.
Federally tax-free
Closed School discharge
The whole balance discharged, payments refunded, and the loan removed from your credit report, where your school closed while you were enrolled or shortly after you left.
Federally tax-free
Borrower Defense to Repayment
Discharge where your school misled you. Which rules apply depends entirely on when your loans were first disbursed, and the newest and most generous set has been pushed back to 2035.
Taxable from 2026
Income-driven forgiveness
The balance left at the end of an income-driven plan's horizon: twenty years on IBR or PAYE, twenty-five on old IBR or ICR, thirty on RAP.
Sources
- Public Service Loan Forgiveness, U.S. Department of Education. Checked on . Backs the 120 qualifying payments and which plans qualify; that Tiered Standard payments do not qualify; the qualifying and non-qualifying employer categories; that the vacated employer rule has no effect.
- Teacher Loan Forgiveness, U.S. Department of Education. Checked on . Backs the $17,500 and $5,000 amounts and who each applies to; the five complete and consecutive years requirement; that the same service cannot count towards PSLF.
- Total and Permanent Disability discharge, U.S. Department of Education. Checked on . Backs the three qualification routes; the automatic discharge through quarterly data matches; the three-year monitoring period and that a VA-based discharge has none.
- Closed School discharge, U.S. Department of Education. Checked on . Backs the 180-day window and the automatic discharge one year after closure; the refund of payments and deletion of adverse credit history.
- Court actions affecting income-driven repayment, U.S. Department of Education. Checked on . Backs that the tax exclusion covered discharges from 1 January 2021 to 31 December 2025; that a milestone reached before 2026 remains covered if the discharge is processed later.