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IRS.gov Website
Publication 970
taxmap/pubs/p970-019.htm#en_us_publink1000178301

Chapter 5
Student Loan Cancellations and Repayment Assistance(p32)

taxmap/pubs/p970-019.htm#en_us_publink1000273664Introduction

Generally, if you are responsible for making loan payments, and the loan is canceled (forgiven), you must include the amount that was forgiven in your gross income for tax purposes. However, if you fulfill certain requirements, two types of student loan assistance may be tax free. The types of assistance discussed in this chapter are:
taxmap/pubs/p970-019.htm#en_us_publink1000178305

Student Loan Cancellation(p32)

rule
If your student loan is canceled, you may not have to include any amount in income. This section describes the requirements for tax-free treatment of canceled student loans.
taxmap/pubs/p970-019.htm#en_us_publink1000178306

Qualifying Loans(p32)

rule
To qualify for tax-free treatment, for the cancellation of your loan, your loan must have been made by a qualified lender to assist you in attending an eligible educational institution and contain a provision that all or part of the debt will be canceled if you work:
EIC
The cancellation of your loan will not qualify for tax-free treatment if it is cancelled because of services you performed for the educational institution that made the loan or other organization that provided the funds. See Exception, later.
taxmap/pubs/p970-019.htm#en_us_publink1000266400

Eligible educational institution.(p32)

rule
This is an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.
taxmap/pubs/p970-019.htm#en_us_publink1000178307

Qualified lenders.(p32)

rule
These include the following.
  1. The United States, or an instrumentality thereof.
  2. A state, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof.
  3. A public benefit corporation that is tax-exempt under section 501(c)(3); and that has assumed control of a state, county, or municipal hospital; and whose employees are considered public employees under state law.
  4. An eligible educational institution, if the loan is made:
    1. As part of an agreement with an entity described in (1), (2), (3) under which the funds to make the loan were provided to the educational institution, or
    2. Under a program of the educational institution that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs where the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization.
Occupations with unmet needs include medicine, nursing, teaching, and law.
taxmap/pubs/p970-019.htm#en_us_publink1000178309
Section 501(c)(3) organization.(p32)
This is any corporation, community chest, fund, or foundation organized and operated exclusively for one or more of the following purposes.
taxmap/pubs/p970-019.htm#en_us_publink1000266401

Exception.(p32)

rule
The cancellation of your loan does not qualify as tax-free student loan cancellation if your student loan was made by an educational institution and is canceled because of services you performed for the educational institution or other organization that provided the funds.
taxmap/pubs/p970-019.htm#en_us_publink1000178311

Refinanced Loan(p32)

rule
If you refinanced a student loan with another loan from an eligible educational institution or a tax-exempt organization, that loan may also be considered as made by a qualified lender. The refinanced loan is considered made by a qualified lender if it is made under a program of the refinancing organization that is designed to encourage students to serve in occupations with unmet needs or in areas with unmet needs where the services required of the students are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization.