Some Student Loan Borrowers Paying Up to $12,000 More on Federal Tax Bills
Borrowers receiving forgiveness through IDR could incur roughly $6,000 to nearly $12,000 in additional federal taxes.
A new report from Protect Borrowers reveals that some student loan borrowers who have their remaining balances forgiven this year could pay up to $12,000 more in federal taxes. This is due to the expiration of a temporary federal exemption that prevented many forms of canceled student loan debt from being treated as taxable income.
The exemption, which applied to discharges after December 31, 2020, and before January 1, 2026, was not extended for IDR forgiveness beyond 2025. As a result, borrowers may face additional tax bills that are double or triple what they would normally pay, particularly those at the end of their IDR repayment plans. Protect Borrowers estimates that 2 million to 3 million borrowers could become eligible for IDR cancellation, potentially exposing them to this "federal tax bomb."
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