Student Loan Forgiveness Is Taxable in Mississippi - Yes, Even PSLF

• Mississippi taxes all forgiven student loans, including PSLF and IDR. You’ll owe state taxes on any forgiven amount.

• You must report forgiveness as taxable income on your Mississippi return, even without a 1099-C. The state may pursue unpaid taxes.

• No exemption has passed. Until the law changes, plan ahead to cover the tax bill.

Mississippi taxes all forgiven student loans as income, including PSLF, IDR forgiveness, and other federal loan discharges. Unlike federal law and most states, Mississippi does not offer exemptions.

This means you’ll owe state income tax on any forgiven amount—even if your loans are wiped out under a federal program.

Below, we break down how much you’ll pay, which programs are taxed, and how to prepare.

Mississippi treats forgiven student loans as taxable income, unlike the federal government.

The state doesn’t follow federal exemptions, meaning borrowers who get loan forgiveness owe state taxes on the canceled debt.

Why Mississippi Taxes Forgiven Student Loans

Mississippi chooses to tax forgiven student loans because it doesn’t automatically follow federal tax rules. The state treats canceled debt as taxable income by default unless lawmakers pass an exemption—and they haven’t.

• Federal law: The American Rescue Plan Act made student loan forgiveness tax-free nationwide through 2025.

• Mississippi law: Unlike most states, Mississippi did not adopt this exemption, so forgiven loans are taxed like income.

• Mississippi Department of Revenue: Confirms that all forgiven student loans must be reported as taxable income on state tax returns.

Which Forgiveness Programs Are Taxed in Mississippi?

• Public Service Loan Forgiveness (PSLF): Taxable in Mississippi, tax-free federally.

• Income-Driven Repayment (IDR) Forgiveness: Taxable in Mississippi, tax-free federally through 2025.

• Borrower Defense & School Closure Discharges: Taxable in Mississippi, tax-free federally.

Most states either follow federal exemptions or create their own, but Mississippi remains one of the few that taxes PSLF forgiveness.

How to Prepare for the Tax Bill

• Set aside money to cover the state tax on forgiven loans.

• Check for policy updates, since some states have reversed course on taxing student loan forgiveness.

• Talk to a tax professional to estimate the amount owed and explore ways to minimize the impact.

Mississippi taxes forgiven student loans as income, adding them to your total taxable earnings. Here’s what that means for your tax bill and filing requirements.

How Much You’ll Pay

• Flat 5% tax rate applies to income above the exemption limit.

• First $10,000 of income is tax-free under the Mississippi Tax Freedom Act of 2022.

• Forgiven student loans count as taxable income and could increase your state tax bill.

Example:

A borrower with $20,000 in student loans forgiven owes up to $500 in Mississippi state taxes (5% of $10,000), assuming other income already exceeds the $10,000 exemption.

How to Report Forgiven Student Loans on Your Taxes

• Report the forgiven loan amount on your Mississippi tax return.

• Enter the amount on Form 80-108, Schedule N (“Other Income”).

• Mississippi requires reporting, even without a 1099-C.

Why This Matters

Loan servicers aren’t issuing 1099-C forms for federal student loan forgiveness (due to the federal tax exemption), but Mississippi still expects you to report and pay taxes on the forgiven amount. The Mississippi Department of Revenue has stated it may pursue unpaid taxes on unreported loan forgiveness.

Mississippi taxes nearly all forms of student loan forgiveness—but one rare exception exists.

The only time forgiven student loans aren’t taxed in Mississippi is when they are discharged through bankruptcy. This exemption is required by federal law.

Mississippi provides NO tax exemptions for:

• Public Service Loan Forgiveness (PSLF)

• Income-Driven Repayment (IDR) Forgiveness

• Total and Permanent Disability (TPD) Discharge

• Death Discharge

• School Closure Discharge

• Borrower Defense Discharge

Mississippi chose not to follow federal tax exemptions for these programs—even disability discharges, which are tax-free at the federal level. Borrowers receiving forgiveness through these programs must still report and pay state taxes on the forgiven amount.

Lawmakers have tried to exempt student loan forgiveness from Mississippi state taxes, but no exemption has passed.

• Bills were introduced in 2023, 2024, and 2025 to exclude PSLF forgiveness from taxable income.

• In 2024, the Mississippi House passed a PSLF tax exemption bill with unanimous bipartisan support (115-0).

• The bill died in the Senate, and no law was enacted.

Mississippi still taxes all forgiven student loans. Until lawmakers pass a new law, borrowers should expect to pay state taxes on any loan forgiveness.

There’s no way to fully avoid the tax under current law, but you may be able to reduce or offset the impact:

• Check for state tax deductions and credits. Mississippi offers certain tax deductions (like education-related expenses) that could lower your overall taxable income. A tax professional can help identify any available credits.

• Consider adjusting your withholdings. If you expect forgiveness soon, increasing state tax withholdings on your paycheck could prevent a large surprise bill.

• Move out of Mississippi before forgiveness. Tax laws vary, but in many cases, if you establish residency in another state before your loans are forgiven, you may avoid Mississippi taxes. Check with a tax professional to confirm residency rules. Related: State Programs for Student Loan Forgiveness

• Plan ahead for payment. Setting aside money in advance can help avoid penalties or financial strain when tax season arrives.

Mississippi is one of the strictest states when it comes to taxing student loan forgiveness. While most states don’t tax forgiven student loans, Mississippi continues to treat them as taxable income with no exemptions.

How Other States Handle Student Loan Forgiveness

Most states (about 40) don’t tax forgiven student loans because they:

• Follow federal tax rules, which exempt forgiveness through 2025.

• Passed state-level exemptions for loan forgiveness.

• Don’t have state income tax (e.g., Texas, Florida).

States That Offer Partial Tax Exemptions

Even states that do tax some forgiveness provide more exceptions than Mississippi:

• Indiana: Exempts PSLF, Teacher Loan Forgiveness, and discharges for death or disability.

• North Carolina: Exempts death and disability discharges.

• Arkansas: Doesn’t tax PSLF or disability discharges.

• Wisconsin: Exempts PSLF, teacher forgiveness programs, and disability discharges.

How This Affects You as a Mississippi Borrower

Mississippi’s tax policy is among the harshest in the country. Borrowers in most other states avoid these taxes entirely.

• Mississippi residents who receive student loan forgiveness will owe state taxes.

• Moving to another state could eliminate the tax burden, as most states don’t tax forgiveness.

Mississippi’s refusal to align with federal exemptions leaves borrowers facing tax bills that residents in other states don’t.

Mississippi taxes all forgiven student loans, including PSLF and IDR forgiveness.

Unlike most states, Mississippi doesn’t follow federal exemptions, meaning borrowers must report the forgiven amount as taxable income and could owe hundreds or thousands in state taxes.

Lawmakers have tried to change this, but no exemption has passed. Until that happens, borrowers need to plan ahead to avoid surprises.

Concerned about what this means for you? We’ve helped borrowers deal with repayment, forgiveness, and the impact of Mississippi’s tax laws.

Book a call today to get clear answers on your options and next steps.

Related Readings:

• Student Loan Forgiveness Programs in Mississippi

• Student Loan Lawyers in Mississippi

• Do Student Loans Affect Tax Return