Student-loan borrowers who get debt relief over the next decade may see their tax bills triple
A provision that made student-loan forgiveness tax-free expired in 2025. A new report shows the higher tax bills borrowers are facing.
A new analysis from Protect Borrowers reveals that student-loan borrowers could face higher tax bills as a result of the expiration of a 2021 provision that made student-loan forgiveness tax-free. The report warns that tax bills could triple for some borrowers who receive debt relief over the next decade. For instance, a married couple with two children earning $60,000 annually could potentially face an additional $7,200 in federal taxes if they had around $50,000 in student debt forgiven.
The estimated additional cost for borrowers ranges from $6,000 to $12,000, based on 2026 federal tax rules and the average student-loan balance canceled under an income-driven repayment plan. The analysis highlights that borrowers in the South, such as Louisiana, Mississippi, and Arkansas, are expected to experience the largest tax increases due to higher balances and lower incomes.
The tax-free provision for forgiven debt, which President Joe Biden's American Rescue Plan included, expired in 2025, leaving borrowers responsible for the taxes associated with their forgiven debt. This presents a significant challenge for those who have finally managed to clear their student loans, as they are now confronted with a substantial tax bill.
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