Study Warns Student Loan Forgiveness Could Raise Taxes

A temporary federal tax exemption for canceled student debt expired at the end of 2025, so borrowers whose balances are forgiven through income-driven repayment plans may face federal taxes on the forgiven amount starting in 2026. Protect Borrowers estimates that affected borrowers could owe roughly $6,000 to nearly $12,000 more, with some households also losing eligibility for tax credits; the nonprofit warns that as many as 3 million middle- and working-class families could be affected over the next decade. Nearly 13 million borrowers are enrolled in income-driven plans, which generally cancel remaining balances after 20 to 25 years of payments. The burden may be especially severe for lower-income borrowers and in states including Louisiana, Mississippi and Arkansas. A separate provision preserves tax-free treatment for student debt discharged because of death or disability, but not for most income-driven repayment cancellations.