Private Student Loan Forgiveness from Discover - How to Handle 1099-C on Taxes

This is actually a really good question with some nuance to it. The American Rescue Plan Act did make student loan forgiveness tax-free at the federal level through 2025, but there's an important distinction here. The tax exemption specifically applies to student loans for education at an "eligible educational institution" and was primarily aimed at federal student loans, BUT private student loans can also qualify as long as they were qualified education loans used for qualifying educational expenses. The fact that Discover is explicitly stating this on their website is a good sign that your forgiven loans should be exempt from federal taxation. For the insolvency question, it works as a safety net if the loans end up being taxable. Basically, if your total liabilities exceed your total assets immediately before the cancellation, you can exclude some or all of the cancelled debt from your income. You'd need to fill out Form 982 to claim this exclusion. As for the cosigner situation, this is tricky. The IRS typically considers the person who received the economic benefit of the loan (in this case, you as the student) to be the one responsible for reporting the cancelled debt. Your dad as cosigner generally wouldn't report it on his taxes since he didn't receive the benefit of the loan. Both of you getting 1099-Cs is common in these situations, but usually only the primary borrower reports it.

After spending hours researching my own student loan forgiveness situation, I found an amazing tool that saved me from making a costly mistake! When I got my 1099-C forms, I was totally confused about whether they were taxable or not (especially with a cosigner involved). I uploaded my 1099-C forms to https://taxr.ai and it immediately identified that my private student loan forgiveness was indeed tax-exempt under the current regulations. The AI analyzed my specific situation and confirmed I didn't need to report the forgiven debt as income, saving me from potentially paying thousands in unnecessary taxes! The tool also explained exactly how the American Rescue Plan Act applies to private student loans like mine from Discover, and gave me documentation to support my tax filing. Literally took like 5 minutes and gave me total peace of mind.

Okay I need to follow up on my skeptical comment. I actually decided to try taxr.ai with my 1099-C forms from Navient (similar situation to yours but different lender). The analysis confirmed my loans were indeed tax-exempt and provided all the relevant tax code references. What really impressed me was how it broke down the cosigner situation - it specifically explained that as the primary borrower who received the benefit of the education, I'm the one who would report any taxable amount (if it were taxable). It also analyzed my specific state's tax laws, since some states don't follow the federal exemption. I showed the report to my accountant and he was impressed with the accuracy. Said it saved him about an hour of research time which saved me money on his fee. Just wanted to update since my initial skepticism was clearly unfounded!

If you're still confused after getting different answers online, you should really try to speak directly with the IRS. I was in a similar situation last year with forgiven medical debt and needed clarification. I tried calling the IRS for THREE DAYS. Always got the "due to high call volume" message and they would disconnect me. Totally infuriating. Then I found this service called Claimyr (https://claimyr.com) that somehow gets you through the IRS phone tree and holds your place in line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent within 25 minutes when I had been trying unsuccessfully for days. The agent was able to confirm exactly how to handle my 1099-C situation. Completely worth it for the peace of mind of hearing directly from the IRS instead of relying on internet advice.

I need to apologize for my skeptical response earlier. I actually tried Claimyr this morning after struggling for a week trying to reach the IRS about my 1099-C situation. It actually worked exactly as advertised. I got a call back in about 40 minutes (was estimated at 45) and was connected directly to an IRS representative. I explained my private student loan forgiveness situation and the confusion with my cosigner also receiving 1099-Cs. The agent confirmed that under the American Rescue Plan Act, private student loan forgiveness through 2025 is indeed not taxable at the federal level as long as it was for qualified education expenses. She also explained that while both the primary borrower and cosigner receive 1099-Cs, only the person who received the economic benefit (me as the student) would potentially need to report it if it were taxable. Saved me hours of frustration and got a definitive answer directly from the IRS. My bad for being so cynical!

Just wanted to add another perspective since I went through this last year with Sallie Mae. The 1099-C forms should clearly state in Box 6 the "Identifiable event code" - if it shows code "G" that specifically indicates student loan forgiveness. Also, don't forget to check your state tax laws! While the federal government isn't taxing student loan forgiveness through 2025, some states still might. I'm in Pennsylvania and they still considered my forgiven student loan as taxable income for state taxes even though it was exempt federally. And if you end up having to claim it as income and are looking into the insolvency option, you'll need Form 982. I had to fill this out and it basically required listing all my assets and liabilities right before the forgiveness happened. Since my total debt exceeded my assets, I qualified for partial exclusion.

A lot of good advice here but one thing I haven't seen mentioned - make sure you keep ALL documentation from Discover about this forgiveness. Print out that statement from their website and save it with your tax records. Also save any communications they sent you about the forgiveness. If you do end up not reporting this as income (which seems correct based on the American Rescue Plan Act), the IRS computer system will still receive the 1099-C information and might automatically flag your return for underreporting income. Having documentation ready will make it much easier if you get a letter asking about the discrepancy. I had something similar happen with PPP loan forgiveness (different program but similar principle of non-taxable forgiveness) and the IRS still sent me a letter asking why I didn't report the income. I sent copies of my documentation showing it was exempt, and they closed the issue without any penalties.

One thing I learned when dealing with my own student loan forgiveness (mine was federal though) - if you and your cosigner both received 1099-Cs for the same amount, check box 7 on your forms! If there's a checkbox marked in box 7, it means you were listed as a co-borrower and the same debt is being reported to multiple people. This is important because the IRS computers might expect both you and your dad to report the full amount, which could lead to the debt being double-counted. This is something your tax preparer should be familiar with handling. Also, double-check the dates on your 1099-Cs. If Discover actually forgave the loans in 2023 but you're just receiving the forms now in 2024, the tax implications would fall in the 2023 tax year. Just something to be aware of!

Just went through this exact situation with my Discover student loans that were forgiven last year! A few additional points that might help: 1) The American Rescue Plan Act exemption definitely applies to private student loans, not just federal ones. The key is that they need to be "qualified education loans" which basically means they were used for legitimate educational expenses at an eligible school. Since these were regular semester loans plus housing during your internship, you should be covered. 2) For the cosigner situation - you're correct that typically only the primary borrower (you) reports this. The fact that your dad got 1099-Cs too is normal but doesn't mean you both claim the income. Think of it like this: you received the education benefit, so you're responsible for any tax consequences. 3) One thing to watch out for - make sure the forgiveness actually happened in 2024. I almost made a mistake because Discover sent me the 1099-C in early 2024, but when I looked closely, the actual debt cancellation date was December 2023. That would have meant reporting it on my 2023 return (if it were taxable). 4) Keep that statement from Discover's website! Print it out and save it with your tax records. Even though this should be non-taxable, the IRS computers will see the 1099-Cs and might automatically question why you didn't report the income. The fact that Discover explicitly states these are tax-exempt gives me confidence this is handled correctly. Still definitely worth confirming with a tax pro though given the amounts involved!

Really comprehensive thread here! I went through something similar with my private loans from a different lender last year and wanted to add a few practical tips: 1) Document everything NOW - I created a folder with screenshots of all the lender communications, the 1099-Cs, and any relevant web pages stating the tax exemption. Even printed email confirmations. This saved me when I got questioned later. 2) For the insolvency calculation (if needed), remember it's your financial position immediately BEFORE the forgiveness, not after. I made this mistake initially and had to recalculate everything. 3) If you're using tax software, many of the major programs (TurboTax, H&R Block, etc.) have been updated to handle the American Rescue Plan Act student loan forgiveness provisions. They'll usually ask you specifically about student loan forgiveness and guide you through whether it's taxable or not. 4) One thing that caught me off guard - even though the forgiveness isn't federally taxable, I still had to report it on some state forms just to show why I wasn't including it in income. My state (California) follows federal rules, but the forms still required disclosure. The bottom line is you're in a much better position than people who had forgiveness before the American Rescue Plan Act. Most of us back then had to pay tax on the full amount or prove insolvency. Sounds like you should be covered under the current exemptions!

I'm dealing with a very similar situation right now! Got my 1099-Cs from Discover in January and have been stressing about this exact issue. Reading through all these responses has been incredibly helpful. One thing I want to add that I learned from my initial research - make sure you also check if your state has any specific guidance on student loan forgiveness taxation. I'm in Texas (no state income tax) so it's not an issue for me, but I've seen some states that don't automatically follow the federal exemption rules. Also, regarding the cosigner situation, I called Discover directly to clarify this and they confirmed that both the primary borrower and cosigner receive 1099-Cs as a matter of standard reporting, but they told me that typically only the person who received the educational benefit (the student) would be responsible for any tax implications. They actually have a FAQ on their website about this specific scenario that might be worth checking out. The documentation advice everyone's giving here is spot on. I've been saving everything - emails, website screenshots, even phone call logs with reference numbers. Better to have too much documentation than not enough if the IRS comes asking questions later. Thanks everyone for sharing your experiences - this has given me a lot more confidence about how to handle my situation!

This thread has been incredibly thorough and helpful! I'm currently going through a similar situation with private student loan forgiveness and wanted to share what I learned from my tax preparer consultation yesterday. A few additional points that might help others: 1) My CPA confirmed that the American Rescue Plan Act exemption does indeed apply to private student loans, but emphasized the importance of the loans being "qualified education loans." The good news is that if your loans were disbursed directly to the school or used for standard educational expenses (tuition, fees, room/board), you're almost certainly covered. 2) For anyone worried about the IRS questioning the non-reporting of 1099-C income, my preparer mentioned that they're seeing fewer CP2000 notices (income matching letters) for student loan forgiveness than expected. The IRS systems have been updated to recognize many of these situations, but documentation is still crucial. 3) One thing I hadn't considered - if you claimed the American Opportunity Tax Credit or other education credits while taking out these loans, that actually supports the case that they were legitimate qualified education loans. It's additional evidence that the money was used for qualifying educational expenses. 4) For those considering the insolvency exclusion as backup - remember that it's calculated on a loan-by-loan basis if you had multiple loans forgiven. You don't need to be insolvent for the total amount, just for each individual loan forgiveness event. The consensus seems clear that most people in this situation should be covered by the tax exemption, but having professional confirmation definitely provides peace of mind given the amounts involved!

This has been an incredibly informative thread! As someone who just received similar 1099-C forms from a different private lender, I wanted to add one more consideration that my tax attorney mentioned. Even though the American Rescue Plan Act provides the federal exemption through 2025, it's worth noting that this is temporary legislation. If you're planning any major financial decisions based on the tax-free nature of this forgiveness (like taking on new debt or making large purchases), just keep in mind that similar forgiveness after 2025 would likely be taxable again under current law. Also, for anyone who might be in this situation in future years, the exemption specifically requires that the loans were forgiven between January 1, 2021, and December 31, 2025. So the timing of when Discover (or other lenders) actually processed the forgiveness matters, not just when you received the 1099-C forms. One practical tip: if you're using a tax preparer, bring all this documentation we've been discussing, but also ask them to put a note in your file about the American Rescue Plan Act exemption. If you get questioned by the IRS later, having that professional documentation trail showing the exemption was considered will be helpful. The original poster should definitely feel confident proceeding with the tax exemption approach based on all the evidence presented here. This community discussion has been more thorough than most professional consultations I've seen!

This has been such a comprehensive and helpful discussion! I'm in a similar situation with private student loan forgiveness and wanted to add one more resource that helped me understand the legal framework. The key section of the tax code is IRC Section 108(f)(5), which was temporarily modified by the American Rescue Plan Act. This section now excludes from gross income any amount of student loan forgiveness between 2021-2025, regardless of whether it's federal or private, as long as it meets the "qualified education loan" definition. What really sealed it for me was finding IRS Notice 2021-58, which specifically addresses the tax treatment of student loan forgiveness under the American Rescue Plan Act. While it doesn't explicitly mention private loans, it refers broadly to "student loan indebtedness" that meets the qualified education loan requirements. For anyone still on the fence about whether this exemption applies to private loans like Discover's, the fact that major lenders are explicitly stating the forgiveness is tax-exempt on their websites suggests their legal teams have thoroughly vetted this position. Companies like Discover wouldn't make such definitive statements about tax treatment without solid legal backing. One final tip: if you use tax software, look for a specific section about "cancelled debt" or "1099-C reporting" - most major programs now have built-in logic to handle the American Rescue Plan Act exemptions. Just make sure to indicate that it was student loan forgiveness, not other types of cancelled debt. Thanks to everyone who shared their experiences - this thread should be bookmarked for anyone dealing with private student loan forgiveness!