Recent legislation and policy changes under the Trump administration have upended federal student loans.
For some borrowers, the shifts may affect their tax situation — how much they owe the IRS, or whether they actually get an expected tax refund.
More than 40 million Americans hold student loans, and the outstanding debt exceeds $1.6 trillion.
Taxability of student loan forgiveness is changing. A law that shielded student loan forgiveness from taxation at the federal level — a provision in the American Rescue Plan Act of 2021 — expires at the end of 2025. President Donald Trump’s “big beautiful bill” did not extend or make permanent that policy. It did, however, make student loan forgiveness tax-free in cases of death or disability.
As a result, student loan borrowers who get their debt forgiven under the U.S. Department of Education’s income-driven repayment plans, or IDRs, after December will again face a federal tax bill. IDR plans cap people’s monthly payments at a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years.
