economy
February 23, 2026
Student loan forgiveness is taxable again. How to plan for a five-figure IRS bill
Student loan holders who get their debt excused in 2026 can expect a hefty tax bill. But there are steps you can take to prepare, and some may not have to pay.
TL;DR
- The tax-free provision for student loan forgiveness under the American Rescue Plan Act of 2021 expired in December.
- Student loan debt forgiven in 2026, especially through income-driven repayment (IDR) plans, may now be considered taxable income by the IRS.
- A borrower with an average loan balance of $57,000 could face a tax bill of over $12,000 if in the 22% tax bracket.
- Documentation of eligibility for forgiveness in 2025, even if discharged later, may exempt borrowers from federal taxes.
- Public Service Loan Forgiveness, Teacher Loan Forgiveness, Borrower Defense, and Total and Permanent Disability Discharge are still tax-exempt.
- Borrowers expecting forgiveness should plan for potential tax liabilities, consult financial advisors, and explore state tax policies.
- Options for managing the tax bill include IRS payment plans for liabilities of $50,000 or less or an Offer in Compromise for difficult financial situations.
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