Can you pay off someone else’s loan? As a general rule, yes — so if you’re a student loan borrower and someone offers you assistance in paying off your loans, you may want to take them up on it.
However, it’s important to understand the implications. While a parent, grandparent, or even a mysterious benefactor could pay off your student loans, they may be responsible for a gift tax if they contribute more than the annual limit. The gift could also come with emotional strings attached.
Read on to learn about the tax implications of paying off someone else’s student loans — and how to repay your loans if the responsibility is all yours.
Table of Contents
Key Points
• If someone pays off your student loans, they may face a gift tax if the amount exceeds the annual IRS exclusion limit.
• Employers can contribute to your student loans without it counting as taxable income, up to a certain amount per year.
• Payments made by parents or others directly to the loan servicer do not count as taxable income for the recipient.
• Gift tax implications apply if a single individual gifts more than $19,000 in one year, but actual tax liability may depend on lifetime gift amounts.
• Ways to pay off your student loans include student loan consolidation, student loan forgiveness, student loan refinancing, and income-driven repayment plans.
Student Loan Repayment
Repaying student loans is a significant financial commitment that requires careful planning and management. After graduation, most federal student loans enter a grace period, typically lasting six months, during which no payments are required. This grace period allows you to get settled into your post-graduation life and start preparing for regular monthly payments. Once the grace period ends, you will begin making payments according to the repayment plan you have chosen.
The standard repayment plan is a fixed monthly payment over 10 years, but there are several other options available to accommodate different financial situations, including income-driven repayment plans.
Common Repayment Scenarios Involving Third Parties
Third parties, such as family members, friends, or employers, can play a significant role in helping borrowers pay off their student loans.
For instance, parents or grandparents might choose to make payments directly to the loan servicer, or they could gift money to the borrower to be used for loan repayment.
Employers may offer student loan repayment assistance as part of their benefits package, contributing a set amount each month or year toward the borrower’s loans. Through CARES Act legislation, employers can contribute up to $5,250 per employee per year toward student loans without the payment counting toward the employee’s taxable income, through 2025.
While these third-party contributions can be a huge relief, it’s important for borrowers to communicate clearly with their servicers and ensure that payments are applied correctly to avoid any administrative issues.
Tax Implications of Employer Student Loan Assistance
Employer-provided student loan assistance can offer significant financial relief, but it also comes with potential tax implications. As of 2023, the first $5,250 of employer contributions toward an employee’s student loans is tax-free. Any amount above this threshold is considered taxable income and must be reported on the employee’s W-2 form. This means that the employee will owe income tax on the additional amount, which could affect their overall tax liability.
Can Parents Pay Off Their Child’s Student Loans?
Yes, they can. But can parents pay off student loans without a gift tax? It depends. If a parent is a cosigner, paying the student loans in full will not trigger a gift tax. In the mind of the IRS, the parent is not providing a gift but is paying off a debt.
However, if a parent is not a cosigner, a gift tax could be triggered, depending on how much they pay.
How the Gift Tax Works
The gift tax applies to the transfer of any type of property (including money), or the use of income from property, without expecting to receive something of at least equal value in return, the IRS says — adding that if you make an interest-free or reduced-interest loan, you may be making a gift.
There are some exceptions. Gifts between spouses aren’t included in the gift tax. That means if you are married and your spouse pays off your loans, that would not trigger a gift tax event.
Tuition paid directly to qualifying educational institutions in the United States or overseas is also not subject to gift tax, but student loans are different.
The annual exclusion for gifts is $19,000 in 2025. That means an individual can give you up to $19,000 without triggering the gift tax, which the givers, not receivers, generally pay. If your parents file taxes jointly, they would be able to give a combined $38,000 a year, which could include paying down loans. Borrowers who have the good fortune to snag $19,000 from mom, dad, granddad, and grandma could get a total of $76,000 without any family member having to file a gift tax return.
Recommended: How Do Student Loans Work?
Annual Gift Tax Exclusion and Limits
As stated, the annual gift tax exclusion for 2025 is $19,000. However, a gift of more than $19,000 towards your student loans doesn’t mean that your benefactor is on the hook for paying a tax on their gift.
The excess amount just gets added to the lifetime exclusion — currently set at $13.99 million. As long as the benefactor’s total lifetime gifts are below that amount, they don’t have to worry about paying a gift tax. Still, if bumping against that lifetime exclusion is a concern, they can spread out their support over the years to avoid gifting you more than $19,000 in a calendar year.
Filing Requirements for Gifts Over the Limit
When an individual gives a gift that exceeds the annual exclusion limit, they are required to file a gift tax return, Form 709, with the IRS.
If the total value of gifts given over the years, including the current gift, does not exceed this lifetime exemption of 13.99 million, no gift tax will be due. However, failing to file the required return can result in penalties and interest. Therefore, it’s essential for individuals who make large gifts to stay informed about these requirements and to consult with a tax professional to ensure compliance and manage their tax obligations effectively.
What Happens When Someone Pays Off Student Loans For You?
A person can pay off graduate and undergraduate student loans for you by either:
• Paying the lender directly
• Paying you, with the expectation you will pay the lender
But if someone pays off your debt, is that income? Once another person has paid off your student loans, it’s as if you had paid them off yourself. You would not have any tax liability.
Financial and Tax Consequences
When someone pays off a student loan on your behalf, the financial and tax consequences can vary. Financially, the immediate benefit is the reduction or elimination of your debt, which can build your credit score, free up cash flow, and reduce financial stress.
However, from a tax perspective, the situation is a bit more complex. If the payment is made by a family member or friend, it is generally considered a gift and is not taxable to you, provided it does not exceed the annual gift tax exclusion limit, which is $19,000 per recipient as of 2025. If the gift exceeds this limit, the giver may need to file a gift tax return, but this typically does not result in immediate tax for the recipient.
If the payment is made by an employer, up to $5,250 of the assistance is tax-free, but any amount above this threshold is considered taxable income to you and must be reported on your W-2.
Impact on Credit and Loan Balances
When someone pays off your student loan, the impact on your credit and loan balances is generally positive. Your loan balance will decrease or be completely eliminated, which can significantly improve your debt-to-income ratio and reduce your monthly financial obligations.
The timely payment of your student loan can have a positive effect on your credit score, as it demonstrates responsible debt management. However, it’s important to ensure that the lender reports the payment to the credit bureaus, as this will help reflect the positive change in your credit report.
Other Options to Pay Off Student Loans
Not everyone has a benefactor, of course. While someone taking your student loan balance down to zero can seem like a dream, there are realistic ways to ease the burden of student loans, no third party required.
The one thing that won’t help: if you stop paying your student loans. Ignoring your student loan payments will result in an increased balance, additional fees, and a lower credit score.
If you hold federal student loans and stop paying them, part of your wages could be garnished, and your tax refund could be withheld. If you default on a private student loan, the lender might file a suit to collect from you.
In other words, coming up with a repayment plan is crucial. Strategies to pay off undergraduate and graduate student loans include student loan consolidation, student loan refinancing, student loan forgiveness, and income-driven repayment plans.
Student Loan Consolidation
If you have federal student loans, you may consider consolidation, or combining multiple loans into one federal loan. The interest rate is the weighted average of all the loans’ rates, rounded up to the nearest one-eighth of a percentage point.
Federal student loan consolidation via a Direct Consolidation Loan can lower your monthly payment by giving you up to 30 years to repay your loans. It can also streamline payment processing.
Consolidating federal loans other than Direct Loans may give borrowers access to programs they might not otherwise be eligible for, including additional income-driven repayment plan options and Public Service Loan Forgiveness.
Recommended: How and When to Combine Federal & Private Student Loans
Student Loan Forgiveness
Student loan forgiveness is a program designed to alleviate the financial burden of student debt for eligible borrowers. These programs are often aimed at individuals who have pursued specific careers in public service, teaching, or other fields that benefit society. To qualify, borrowers typically need to meet certain criteria, such as making a set number of on-time payments and working in a qualifying job for a specified period. The most well-known program is the Public Service Loan Forgiveness (PSLF) program, which forgives the remaining balance of federal student loans after 120 qualifying payments.
Borrowers who take out loans on or after July 1, 2026 can still benefit from PSLF so long as they choose the RAP and not the standard repayment plan.
Another way students can get their loans forgiven is through a disability discharge. Disability discharge is a provision that allows borrowers with total and permanent disabilities to have their federal student loans forgiven. To qualify, borrowers must provide documentation from a physician or the Social Security Administration (SSA) confirming their disability status. Once approved, the borrower’s remaining loan balance is forgiven, and they are no longer responsible for making payments.
Student Loan Refinancing
With student loan refinancing, a borrower takes on one new, private student loan to pay off previous federal and/or private student loans. Ideally, the goal is a lower interest rate. The repayment term might also change.
However, refinancing federal loans means that borrowers will no longer be eligible for federal repayment plans, forgiveness programs, and other benefits. If a borrower needs access to those programs, student loan refinancing won’t make sense.
But for borrowers who have no plans to use the federal programs, a lower rate could make refinancing worthwhile. Using a student loan refinancing calculator can help a borrower see how much money they might save by refinancing one or all of their loans.
Recommended: Consolidate Student Loans vs Refinance
Income-Driven Repayment Plans
Income-driven repayment (IDR) plans are federal student loan repayment options designed to make monthly payments more affordable by basing them on a borrower’s income and family size. These plans typically cap your monthly payment at 5% to 20% of your discretionary income and extend the loan term to 20 or 25 years, depending on the specific plan.
Starting on July 1, 2026, income-driven repayment plans PAYE, ICR, and SAVE will be replaced by a new Repayment Assistance Plan (RAP). The existing IDR plans will be eliminated by July 1, 2028. With RAP, payments range from 1% to 10% of adjusted gross income with terms up to 30 years. After the term is up, any remaining debt will be forgiven.
Refinancing Student Loans With SoFi
Even if your parents, grandparents, or others in your life are not in a position to pay off your student loans for you, understanding your options for potentially lowering your monthly payments or saving money over the life of a loan can give you multiple avenues to explore as you work toward taking control of your finances.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
Can I pay off my child’s student loans?
Yes, you can pay off your child’s student loans. But, depending on the amount, there may be tax implications.
Is paying off a child’s student loans considered a gift?
Yes. Paying student loans for someone else is considered a gift and would incur a gift tax for any gift above $19,000, which is the gift exclusion cutoff for 2025. That means both parents can contribute $38,000 per calendar year toward their child’s student loans without owing gift tax.
Can I pay off my sibling’s student loans?
Yes. You can absolutely win sibling of the year and pay off your sibling’s student loans. Just know that any gift above $19,000 in 2025 will trigger a gift tax that you will be responsible for paying.
Do I owe taxes if someone else pays my student loans?
If someone else pays your student loans, the amount paid may be considered taxable income, especially if it exceeds the annual gift tax exclusion. However, if the payments are made directly to the lender, they are generally not taxable. Always consult a tax professional for specific advice.
Can paying off someone’s loans impact their eligibility for forgiveness programs?
Paying off someone’s loans can impact their eligibility for forgiveness programs, as these programs often require a specific amount of unpaid debt and a history of consistent payments. If the loans are fully paid off, the individual may no longer qualify for forgiveness. Consult the specific program’s rules for details.
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