Many student loan borrowers who get their debt forgiven in 2026 can expect a hefty tax bill next year. That’s because a law that shielded the relief from taxation at the federal level — part of the American Rescue Plan Act of 2021 — expired in December.
Most impacted borrowers will be those who have their debt excused under the U.S. 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 erase any remaining debt after a certain period, typically 20 or 25 years.
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More than 12 million student loan borrowers are enrolled in IDR plans, according to higher education expert Mark Kantrowitz.
Because that forgiven federal student debt may now be considered income by the IRS, the tax liability can be substantial.
