Student loan forgiveness is something millions of borrowers work toward, but many are unaware of the tax costs associated with it. The start of 2026 brings about important changes when it comes to loan forgiveness and filing taxes. Here’s a breakdown so you don’t get caught off guard.
Federal Income Taxes
If your loans are forgiven in 2026 and beyond, you could now be on the hook for paying federal income taxes on the loan amounts that were cancelled. This is true if you enrolled in any of the Income-Driven or Income-Based Repayment Plans and made qualifying payments for up to 20 or 25 years.
If this news confuses you or comes as a shock, you’re not alone.
For years, borrowers were able to exclude forgiven student loan amounts from their income for tax filing purposes. But a series of complicated legislative and legal battles (that looked more like a Wimbledon tennis match) changed things drastically.
Here’s some background that led us to this point.
Joe Biden Administration Policies
During the Biden Administration, the American Rescue Plan Act (ARP) was implemented. This allowed any student loan amounts that were discharged or modified between December 31, 2020 and January 1, 2026 to be excluded from your income on your tax return. Even though the ARP covered a five-year period, it was considered a temporary program. And now that it has expired, there are some new questions—and concerns—regarding cancelled student loan debt through income-driven repayment plans; especially those that were deemed to be illegal.
Supreme Court
On June 30, 2023, the Supreme Court ruled that the Biden Administration overreached its authority by attempting to cancel up to $400 billion in student loans. Biden’s plan would have forgiven up to $20,000 for borrowers who met certain criteria, including households earning incomes of less than $250,000 per year.
Citing the HEROES Act from 2003 (Health and Economic Recovery Omnibus Emergency Solutions), the Biden Administration argued that the law did not just cover soldiers in active duty in Iraq and Afghanistan, but also national emergencies such as COVID-19. Of course, the Supreme Court disagreed.
Millions of Americans
The Biden Administration also attempted to implement another program called Saving on a Valuable Education (SAVE) Plan which was a form of income-driven repayment designed to help millions of Americans. The SAVE Plan is now ending after legal battles challenged the legitimacy of the program, impacting nearly 7 million borrowers who will be forced to switch to a different repayment plan.
Many borrowers were also led to believe that the SAVE Plan would provide a shorter path to loan forgiveness.
Senate Letter to Treasury and IRS
On November 9, 2025, Senator Elizabeth Warren, along with eight other Senate Democrats, sent a letter to the U.S. Department of the Treasury and IRS with concerns over tax hikes that will hit borrowers due to the expiration of the ARP. The letter calls out the fact that 62% of income-driven cancellation recipients have household incomes of $50,000 or less and could face a tax penalty as high as $10,295 because they will be taxed on loan forgiveness amounts. While the senators are requesting something called an “insolvency exclusion” (where a taxpayer is not required to include forgiven debts in their income), the IRS and Department of Treasury have no obligation to comply. And as of the time of this writing, no decisions have been made.
Public Service Loan Forgiveness (PSLF)
It is important to note that recent changes do not impact the Public Service Loan Forgiveness (PSLF) program. Based on IRS guidelines, student loan amounts forgiven under PSLF are not considered as taxable income. Therefore, there are no tax implications.
Another exemption is teachers who are members of the American Federation of Teachers (AFT) and who have already applied for and qualified for loan forgiveness. Due to prior processing delays, the Department of Education (ED) and the AFT reached an agreement that provides forgiveness to teachers without being subject to a tax bill.
Total and Permanent Disability
Another clarification is that student loans that are discharged through total and permanent disability are exempted. In other words, forgiven loans resulting from total and permanent disability do not carry tax liabilities, and the amount of canceled debt is not claimed as income.
So what does all this mean for your tax return? If you recently had your loans forgiven, or you’re expecting to qualify soon, here are some things you’ll need to consider and act on.
Student Loan Debt Forgiveness
Get a clear picture of how much you’re expecting in student loan debt forgiveness. Typically, you will receive written notification from the Department of Education (StudentAid), as well as your loan servicer. This comes after you’ve met the qualifying number of payments in your income-driven repayment plan. (Again, PSLF carries no tax implications, so we’re just talking about debt forgiveness from income-driven plans that you’d need to claim as income).
ACTION: You can always call your loan servicer prior to the end of your repayment term to find out if you’re on track for loan forgiveness, and to get an understanding of the corresponding dollar amount that is expected to be forgiven. You can also log into your account online.
Higher Incomes
The amount of your student loan forgiveness will result in higher total income that you’ll need to report on your tax return. For example, if your gross income is $65,000 and the amount of your canceled student loans is $30,000, you will report $95,000. This could increase the amount of federal taxes you owe.
For some borrowers, depending on their earnings and student loan forgiveness amounts, they could also end up in a higher tax bracket. Depending on your state, there may be additional state taxes to consider as well.
ACTION: You may want to use a tool like the TurboTax Tax Bracket Calculator to find your estimated tax bracket.
Budget for Filing Season
Now that you have an idea of your expected loan forgiveness amount, you should start preparing early for the higher adjusted income you’ll be asked to report. To avoid being unprepared, consider saving money each month to put toward your taxes.
ACTION: You can pre-pay a portion of your federal taxes online. The IRS has estimated tax payment information, forms, and instructions on their website. You can also make payments several times per year.
As always, you are highly encouraged to consult with a tax professional or financial advisor for specifics regarding your circumstances.
Future Borrowers
One thing is becoming clearer than ever: student loan forgiveness has tremendous impacts not just on current loan borrowers, but future borrowers. Newer borrowers with loans disbursed on or after July 1, 2026 will not even qualify for the current income-driven repayment plans, including PAYE and Income-Contingent Repayment. They will be able to enroll in the Repayment Assistance Plan (RAP). But to qualify for loan forgiveness, they would need to be in repayment for at least 30 years.
That said, with each shift in political office (at the congressional and presidential level), we can expect to see policy changes surrounding the federal student loan program. It’s been happening since 1958. Some changes happen slowly and others quickly. It is hard to predict when or how those changes will impact borrowers currently in repayment.
Our best advice is to keep in touch with your loan servicers and make sure your email, phone, and mailing address are kept up to date. This way, you won’t miss any critical communications that could impact your loans…or your taxes.
