Do student loans count as income on my taxes?

By Erica Gellerman | Published on October 21, 2025

)

When you’re a student, filing your federal income taxes can get confusing. You’re likely cobbling together funds from all kinds of sources to pay for school, including loans, financial aid, scholarships, grants, and work-study. Some of this shows up in your bank account as a huge influx of cash. But if you have to pay it back over time, does it count as income? Which funding sources do you need to report to the Internal Revenue Service IRS to avoid a surprise tax bill at the end of the year?

Here’s a guide to help you understand what’s counted as income and what isn’t, and how your student loans could affect your taxes.

Do Student Loans Count as Taxable Income?

Let’s start with some good news. If you take out federal or private student loans to pay for your education, this is not considered taxable income. That’s because student loan debt needs to be repaid¹ with interest to the lender. The same is true of all other loans with monthly payments and interest, including credit card debt, personal loans, and mortgage loans.

The same is true if you apply for a student loan refinance. Even though a refinance effectively switches your old debt to a new lender, it still counts as a new loan. So, it follows the same rules.

Is Loan Forgiveness Considered Taxable Income?

If loans aren’t considered income because you have to pay them back, what happens if you qualify for student loan forgiveness and don’t need to repay the loan? Is the forgiven amount considered taxable income? The answer depends on the type of forgiveness you qualify for.

Generally, any loan that is forgiven or discharged is considered income in the eyes of the IRS. But there are eligibility exceptions specifically related to student loans.

Loans forgiven under the Department of Education’s Public Service Loan Forgiveness Program (PSLF) aren’t considered taxable income. If your loans are forgiven thanks to your participation in this program, you won’t need to pay tax on the forgiven amount. Right now, there’s also another provision in place that protects other student loan forgiveness recipients from taxation. If your loans were forgiven between December 31, 2020 and January 1, 2026, you won’t need to pay taxes on the forgiven amount. This includes borrowers whose loans were forgiven during the one-time “payment count adjustment” the federal government issued in 2024.

But, qualifying for forgiveness in future years may leave you with a tax bill. For example, if your student loans are forgiven under an income-driven repayment plan², you may need to pay taxes on the forgiven amount in the future.

It’s also important to keep in mind that federal taxes and state taxes are different. Just because the federal government won’t tax you on a loan-forgiveness windfall doesn’t mean your state won’t.

Are Other Forms of Education Assistance Tax Benefits?

Student loans aren’t the only way college students can receive help in paying for your educational institution. But are other forms of assistance considered income that you’ll need to pay tax on? There are other tax situations or tax credits that you should know about.

Scholarships and grants

You may have the opportunity to offset some of your college costs with grants, scholarships, and other forms of “gift aid.” Unlike loans, these types of aid don’t need to be repaid. So will you get stuck paying taxes on that money? Probably not.

The IRS has a few conditions that you must meet to exclude grants and scholarships from taxable income:

• You must be a candidate for a degree program.
• Your school must maintain a regular faculty and curriculum, and it must regularly enroll students.
• The student aid you receive must be used for necessary education expenses, including tuition and fees, books, supplies, and equipment.

This covers a lot of situations, but not all. If you use any of your scholarship or grant money to cover room and board or travel, you’ll need to report that amount as taxable income.

You’ll also need to include in your taxable income any scholarship or grant money that you receive in exchange for teaching, research, or other services. In that case, the money is effectively a payment for services rendered, and therefore counts as income.

Employer tuition assistance or loan repayment

Some employers offer tuition assistance benefits or loan repayment as an employee perk. With this benefit, employers will pay up to a certain amount to help offset the cost of education. If you are working and your employer offers tuition assistance, you can exclude up to $5,250 of that benefit from your taxable income each year as long as it was used for eligible expenses, like tuition and fees or books. This program has been extended through the end of 2025.

If your employer pays more than $5,250 for your higher education in a year, you’ll have to include the remaining balance on your tax return as taxable income.

In addition to helping pay for school, more employers are now offering assistance programs to employees with their student loan payments. Some employers will pay a certain amount monthly towards their employee’s student loan amounts, helping to pay them off faster.

In past years, any payments an employer made toward an employee’s student loans were considered taxable income. But thanks to the CARES Act, employer loan payments made through the rest of 2025 (up to $5,250) are tax-free.

Student Loan Interest Deduction

The other good news is that borrowers can actually get money back on their tax returns by reporting their student loans. That’s thanks to a tax provision called the “student loan interest tax deduction.” According to this provision, you can deduct up to $2,500 in interest payments made on qualified student loans during the year, provided that your income is under a certain threshold. For 2024, that threshold is $80,000 for single filers. After that amount, there is a phase-out of the deduction based on your income, so depending on how much you earn, you may only be able to take a partial deduction or no deduction at all. If you made between $80,000 and $95,000 per year in 2024 as a single filer, you could qualify for a partial deduction. If you made more than $95,000, you would no longer qualify for a deduction.

Other ways to save money this tax year

When it comes to student loans and paying for college, taxes can be a little tricky, and it is important to talk to a tax professional to learn more. But knowing what counts as income — and what doesn’t — can help save you from a big tax bill at the end of the year. Report your student loan interest on your tax return and take advantage of employer assistance perks, and you could reduce what you owe even further.

Another way to save money on your student loans this tax year: look into a refinance. If you meet your lender’s eligibility requirements, you could score a lower interest rate, which could help you reduce your monthly payment, save money over the life of the loan, and/or get out of debt faster³. Want to see if you qualify? Check your rate for free with Earnest today. It only takes minutes, and it won’t affect your credit score.