Recent delays to student loan forgiveness could leave borrowers with an unexpected tax bill.
Under the Trump administration, hundreds of thousands of borrowers who requested to be enrolled in a repayment plan that leads to debt cancellation are stuck in limbo amid a backlog of applications. Recent court actions and the passage by Congress of President Donald Trump’s “big beautiful bill” will further complicate some people’s path to debt erasure.
At the same time, a law that shielded student loan forgiveness from taxation is expiring at the end of 2025. These combined events could mean that borrowers who get the relief later than anticipated may also end up owing a bill to the IRS.
“Borrowers could face a massive tax bill if their cancellation is delayed after January 1, 2026,” said Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center.
The American Rescue Plan Act of 2021 made student loan forgiveness tax-free at the federal level through the end of 2025. Trump’s “big beautiful bill” did not extend or make permanent that broader provision.
