Student Loan Forgiveness Taxable Again in 2026

Borrowers expecting relief could face major IRS tax bills next year.

Published on Feb. 25, 2026

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Student loan forgiveness is set to become taxable again in 2026 after a temporary tax break expired, meaning borrowers enrolled in income-driven repayment (IDR) plans could face significant tax liabilities on their forgiven balances. Experts advise affected borrowers to start planning now to soften the financial blow.

Why it matters

The return of taxable student loan forgiveness could trigger major tax bills for millions of IDR borrowers, many of whom are already struggling with high debt loads. This change could create financial hardship for those expecting relief in the coming years.

The details

Under the American Rescue Plan Act of 2021, forgiven student loan balances were temporarily exempted from federal income taxes. However, this provision expired in December 2025, meaning forgiven debt may now count as taxable income. For the over 12 million borrowers enrolled in IDR plans, this could result in tax bills of thousands of dollars, with the average IDR balance around $57,000. Those in the 22% tax bracket could owe over $12,000, while even borrowers in the 12% bracket would still face a $7,000 liability.

  • The American Rescue Plan Act's tax exemption for forgiven student loans expired in December 2025.
  • Borrowers who became eligible for forgiveness in 2025 will not owe federal taxes on the relief, even if the discharge happens later.

The players

Mark Kantrowitz

A higher education expert who estimates over 12 million people are currently enrolled in income-driven repayment (IDR) plans.

Nancy Nierman

The assistant director of the Education Debt Consumer Assistance Program in New York, who advises borrowers to save documentation proving their eligibility for forgiveness prior to the tax-free provision lapsing.

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What they’re saying

“The average loan balance for borrowers enrolled in an IDR plan is around $57,000. For someone in the 22% tax bracket, that could mean a tax bill of more than $12,000. Borrowers in the 12% bracket would still owe roughly $7,000, he estimated.”

— Mark Kantrowitz, Higher education expert

“If you received confirmation in 2025 that you're eligible for debt cancellation, you should save that dated record. You may be able to use that document to prove you were entitled to the relief before the tax-free provision lapsed.”

— Nancy Nierman, Assistant director, Education Debt Consumer Assistance Program

What’s next

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The takeaway

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