Some Student Loan Borrowers Could Face a Giant Tax Bill if the Government Doesn’t Take Action Soon

Some federal student loan borrowers could face a surprisingly large 2026 tax bill if they don’t receive their loan forgiveness by the end of this year.
Several months ago, the Department of Education temporarily paused loan forgiveness under all income-driven repayment plans to comply with a court ruling from earlier this year. Borrowers who should have received their forgiveness this year anxiously await its resumption, hoping it will come before they are taxed on it.
Typically, student loan borrowers can get the remainder of their loans discharged after 20 or 25 years of qualifying payments under an income-driven repayment plan. This year, however, many borrowers have not received their forgiveness, although they have already met the required number of payments.
Borrowers are running out of time, because a temporary tax rule created by former President Joe Biden allowing forgiveness to be tax-free is set to end after 2025.
The way the tax rule is currently written, borrowers whose forgiveness is processed in 2026 or later — even if they reached their required payments in 2025 — will have to pay taxes on the amount that was forgiven.
“Borrowers who satisfy the requirements for loan cancellation through the end of 2025 are entitled by statute to this tax treatment, the consequences of which are extremely significant for individuals,