Student loan forgiveness: Why borrowers could face a $12,000 tax bill in 2026

Student-loan forgiveness could lead to a significant tax bill for borrowers in 2026, according to a new analysis. The tax burden could reach up to $12,000, depending on the borrower's income, family size, and the amount of debt forgiven. This tax issue arises after a temporary federal tax break expired at the end of 2025, making forgiven student debt taxable income.

A married couple earning $60,000 a year could face an additional $7,200 in federal taxes and lost tax credits if around $50,000 in student debt were forgiven, as estimated by the advocacy group Protect Borrowers. The tax impact varies by borrower, ranging from about $6,000 to $12,000. The analysis was based on 2026 tax rules and uses the average amount of student debt canceled under an income-driven repayment (IDR) plan, which forgives remaining student debt after 20 or 25 years.

Some Southern states, such as Louisiana, Mississippi, and Arkansas, may face the biggest tax increases due to higher student-loan balances and lower incomes. Borrowers nearing forgiveness may face a separate federal tax hit, undermining the purpose of IDR programs, which promise debt relief instead of lifelong student loan burdens.