Student Loan Forgiveness Could Triple Tax Bill for Many Borrowers: Report
Summary
Millions of people with student loans who get their remaining debts forgiven may face much higher federal tax bills. A new report says that after a tax break ends in 2025, borrowers could owe the government thousands of dollars in taxes on the forgiven amounts starting in 2026.Key Facts
- Between 2 million and 3 million Americans could face extra federal taxes on forgiven student loan debt over the next ten years.
- The extra tax bill could be between $6,000 and nearly $12,000 for some borrowers.
- A temporary tax break from the American Rescue Plan Act, which excluded forgiven student loan debt from taxable income, ends on December 31, 2025.
- Starting in 2026, forgiven debt under income-driven repayment (IDR) plans will again count as taxable income.
- The average student loan balance canceled through IDR plans is about $49,697.
- Most borrowers with canceled debt earn less than $50,000 a year (adjusted to $60,000 in 2026 dollars).
- About 13 million Americans are currently enrolled in IDR plans, but only 2 to 3 million may see taxable loan forgiveness soon.
- Borrowers may struggle to pay these new taxes, which can reduce savings and retirement funds and lead to IRS collection actions if unpaid.
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