Does California Tax Student Loan Forgiveness?

• California doesn’t tax your forgiven student loans, so when your loans are canceled, you won’t face an unexpected state tax bill.

• Laws like AB26 and SB220 make sure that canceled student debt isn’t counted as taxable income in California.

• While the IRS might treat forgiven loans as federal taxable income, programs like PSLF or provisions in the ARPA keep your federal taxes in check.

California exempts forgiven student loans from state taxation, meaning borrowers won’t face additional tax liability when their educational debt is eliminated.

Here’s why: California law specifically excludes certain canceled student loans from taxable income. While federal regulations may sometimes classify discharged debt as taxable, California provides borrowers with complete relief without imposing any state tax burden.

Let’s break it down.

Related: State of California Student Loan Forgiveness Programs

California’s student loan relief tax rules have changed over time.

In the past, some borrowers—mainly those with higher incomes—had to pay state taxes on forgiven student loans. But new laws changed that.

AB 26 made it clear that federal student debt relief isn’t taxable in California. Later, SB 220 strengthened this protection, closing any loopholes.

Bottom line? If your student loans are forgiven, you won’t get hit with a state tax bill.

While future changes are always possible, California law currently guarantees your forgiven loans stay tax-free.

If you live in California, you don’t have to worry about state income taxes when your student loans are forgiven.

Thanks to laws like AB 26 and SB 220, student loan relief is tax-free in California. Borrowers in other states might get stuck with a tax bill. But you won’t!

But here’s the catch: this only applies at the state level. Federally, the IRS usually treats forgiven loans as taxable income unless you qualify for an exemption, such as:

• PSLF: The Public Service Loan Forgiveness (PSLF) program is always tax-free.

• ARPA: The American Rescue Plan Act temporarily makes most federal student debt relief tax-free through 2025.

It’s critical to stay in the know about your state and federal tax treatment to avoid any surprises when your loans are forgiven.

Here are some helpful resources from legitimate sources:

• California Franchise Tax Board Guidelines: Get the straight facts directly from California’s tax authority. This official page spells out how forgiven student loans stay tax-free, so you know exactly what to expect on your return.

• The IRS Newsroom: This resource explains when the IRS counts forgiven debt as income—and when it doesn’t, like with PSLF or under recent tax-free provisions.

• The U.S. Department of Education Support Line: The U.S. Department of Education’s official helpline (1-888-303-7818) provides guidance for federal student loan forgiveness programs.

• StudentAid.gov: Check your loan details, submit employment certification forms, and track your progress.

• PSLF Calculator: Use this tool to estimate how many payments you need to qualify for Public Service Loan Forgiveness.

The California state law exempts student debt forgiveness from income taxes, unlike other states.

That’s why clearing your student loan debt through the PSLF program is so crucial. We cut through the red tape to help you harness this benefit and move forward with confidence.

Book a call with one of our student loan experts today and get the clear, direct guidance you need to reclaim control of your finances.

Related reading:

• Filing Taxes With Student Loans

• Will Student Loans Take My Taxes in 2025?

• The Tax Implications of Settling Student Loan Debt

• How IRS Insolvency Affects Student Loan Forgiveness Taxes

• SAVE Plan Tax Bomb