Student loan borrowers whose debt is canceled in 2026 or later may face a significant tax bill.
A law that shielded student loan forgiveness from taxation at the federal level — part of the American Rescue Plan Act of 2021 — expired on Dec. 31, 2025. President Donald Trump’s “big beautiful bill” did not extend or make permanent that provision.
As a result, certain borrowers who’ve recently received education debt cancellation or expect to do so in the future should take steps as soon as possible to be prepared, experts say.
The taxation change applies to the Department of Education’s income-driven repayment plans, or IDRs. Enacted in the 90s, IDR plans cap people’s monthly payments at a share of their discretionary income and excuse any remaining debt after a certain period, typically 20 or 25 years.
“A lot of people are very close to their 20- or 25-year mark,” said Ethan Miller, a certified financial planner and founder of Planning for Progress in the Washington area. Miller specializes in student loans.
