Summary
Starting in 2026, student loan borrowers may face federal tax bills up to $10,000 due to the expiration of a tax exemption on forgiven student debt. This change affects people who expected to benefit from income-driven repayment programs, which previously provided tax-exempt debt forgiveness. U.S. senators are urging the government to find a solution to prevent financial harm to borrowers.
Key Facts
- Starting in 2026, forgiven student loan debt will no longer be exempt from federal income tax.
- The American Rescue Plan provided tax exemption on forgiven student debt, but this will end in 2025.
- Borrowers could face federal tax bills between $5,800 and $10,000, depending on their debt amount.
- U.S. senators, including Elizabeth Warren and Bernie Sanders, have warned about the financial impact on borrowers.
- The Treasury and IRS are being urged to either extend the exemption or find another solution before 2025 ends.
- The "Trump's One Big Beautiful Bill Act" introduces a new repayment plan with higher monthly payments.
- The new rules could push many to switch repayment plans, affecting approximately 3 million current IDR borrowers.
