Here’s What You Need To Know About the 2026 Student Loan Tax Change
If you’re benefiting from student loan forgiveness, listen up — there’s a tax change coming in 2026 that will likely affect you. Temporary federal tax relief is ending for forgiven student loan debt, which is going to impact taxpayers with income driven repayment (IDR) plans.
Essentially this means borrowers are going to need to pay taxes on the forgiven student debt. The government is viewing the debt relief as if it was a type of income, in which case, an individual would need to pay taxes on it.
What the Tax Rule Was in 2025
Through the end of December 2025, student loan amounts that were forgiven with IDR plans weren’t typically taxable income when it came to federal taxes. This was thanks to a temporary tax rule that was put in place during the pandemic, valid from 2021 through 2025.
However, come the start of 2026, when borrowers complete IDR plan loan requirements and receive forgiveness, they’ll likely get a bigger tax bill if the relief measures aren’t extended.
Let’s say you had $50,000 of student debt forgiven. The U.S. government is now viewing it as though you were given $50,000 of income and you will be taxed on that income. That “income” didn’t used to be taxable between 2021 and 2025.
What to Expect Starting January 2026
This change has been called the “Student Loan Tax Bomb.” Starting January 1, 2026 individuals who are discharged from their IDR plan loan — this often happens after 20 to 25 years of payments — will be addressed as though it is taxable income on their federal return. (That is, unless another exclusion applies.)
This is on a federal level — depending on what state you’re in, the laws could be different as well.
The main individuals affected by this change are borrowers in IDR plans, and those who have student debt that will be forgiven in 2026 or after.
Certain kinds of student loan forgiveness will still be tax-free even in 2026 and beyond, such as those who qualify for Public Service Loan Forgiveness (PSLF). These are occupations including teachers, nurses, doctors, and other such public service jobs, etc. There are other qualifying forgiveness programs as well that will remain tax-free.
How to Prepare
If you think these changes might affect you, it’s best to start preparing as soon as possible. A good first step is to check your own student loan forgiveness timeline.
Work with a tax professional to plan ahead so that you can start saving in advance. We help our clients estimate how much they’ll owe so they can begin putting funds away ASAP to avoid any unpleasant surprises come tax time.
Keep an eye out for updates. There is a possibility that Congress could change or extend the legislature which could mean new revisions to the rule.
Tax law can get complicated, especially frequently changing situations such as student loan forgiveness. Our best advice is to consult an expert to make sure you have the most up-to-date information and are staying compliant. Contact Personal Financial Services and we’ll help you understand how the situation affects you and how to prepare.