Student Loan Forgiveness Triggers Hefty Tax Bills in 2026

Borrowers must plan ahead as forgiven debt may be considered taxable income.

Published on Feb. 23, 2026

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Many student loan borrowers who get their debt forgiven in 2026 can expect a hefty tax bill next year, as a law that shielded the relief from taxation at the federal level expired in December. The average loan balance for borrowers enrolled in an income-driven repayment (IDR) plan is around $57,000, and for those in the 22% tax bracket, having that amount forgiven would trigger a tax burden of more than $12,000. Experts advise borrowers to start planning for the potential tax liability now.

Why it matters

The new potential tax liability comes at a time when many student loan borrowers have faced delays in accessing the debt forgiveness to which they're entitled. This could create significant financial hardship for some borrowers, especially lower-income individuals, who may struggle to save enough to pay the tax bill.

The details

Most impacted borrowers will be those who have their debt excused under the U.S. Department of Education's income-driven repayment plans (IDRs), which cap monthly payments at a share of discretionary income and erase any remaining debt after a certain period. More than 12 million student loan borrowers are enrolled in IDR plans, and the forgiven federal student debt may now be considered income by the IRS, triggering a substantial tax liability.

  • The American Rescue Plan Act of 2021, which shielded student loan forgiveness from taxation at the federal level, expired in December 2025.
  • Borrowers who received confirmation in 2025 that they're eligible for debt cancellation may be able to use that dated record to prove they were entitled to the relief before the tax-free provision lapsed.
  • Taxes on forgiven student loan balances are due by the filing deadline of April 15, 2027.

The players

Mark Kantrowitz

A higher education expert who estimates that the average loan balance for borrowers enrolled in an IDR plan is around $57,000.

Nancy Nierman

The assistant director of the Education Debt Consumer Assistance Program in New York, who advises borrowers to save dated records of their eligibility for debt cancellation in 2025.

Landon Warmund

A certified financial planner and certified student loan professional at Reliant Financial Services in Kansas City, Missouri, who warns that forgiven balances could count as regular income, potentially thrusting borrowers into a higher tax bracket.

Ethan Miller

A certified financial planner and founder of Planning for Progress in the Washington, D.C., area, who specializes in student loans and advises borrowers to work with a financial advisor or tax professional to estimate their future tax bill.

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What they’re saying

“Hopefully, you can take the amount you were paying on your loans, start putting that aside and building up a pot of money.”

— Ethan Miller, Certified Financial Planner (CNBC)

“Big balances are going to be forgiven, and because those forgiven balances could count as regular income starting this year, borrowers may face other tax consequences, as well.”

— Landon Warmund, Certified Financial Planner and Certified Student Loan Professional (CNBC)

What’s next

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The takeaway

This case highlights growing concerns in the community about repeat offenders released on bail, raising questions about bail reform, public safety on SF streets, and if any special laws to govern autonomous vehicles in residential and commercial areas.