Student Loan Debt Forgiveness Now Taxable

Student loan forgiveness is once again treated as taxable income. That is the correct policy. It restores a basic rule of the tax code and closes a loophole that would otherwise invite abuse.

As reported by CNBC, the temporary exemption that allowed student loan forgiveness to escape taxation has expired. Going forward, borrowers whose loans are forgiven will owe taxes on that forgiven balance, just as they would with any other form of income.

This outcome is not punitive. It is consistent.

The tax code draws a clear distinction between income and loans. Income is taxed. Loans are not, because they must be repaid. When a loan is forgiven, repayment disappears. At that point, the borrower has received a financial gain that is economically identical to income.

Failing to tax forgiven debt breaks that logic. It turns borrowing into a tax-free substitute for earning. Over time, that encourages larger debts in anticipation of future forgiveness, knowing the IRS will never come calling.

Student loan policy made this risk especially clear. Broad forgiveness proposals paired with tax-free treatment would have rewarded excessive borrowing while shifting costs onto taxpayers who paid their loans, chose lower-cost schools, or entered the workforce without debt. That is not relief. It is redistribution through the back door.

The principle does not stop with student loans. Any system that exempts forgiven debt from taxation creates incentives to game the system. Whether the debt is tied to education, business activity, or housing, a forgiven obligation still represents income.

That is why carve-outs for primary residences are also a mistake. Exempting certain assets deepens inequities and invites strategic behavior. A fair tax code applies neutral rules consistently rather than picking favored categories.

If lawmakers want to help specific groups, they should do so openly through targeted tax credits or direct assistance. Quietly redefining income to avoid political backlash is neither honest nor sustainable.

The rule going forward is simple. If student loan debt is forgiven, it is income. And income is taxable. That clarity is good for taxpayers, good for incentives, and good for the integrity of the system.