Do you have to pay taxes on student loan forgiveness?

Piggy bank wearing a graduation cap stuck inside an animal trap

Some people may be facing a student loan 'tax bomb'

(Image credit: Wong Yu Liang / Getty Images)

Obtaining student loan forgiveness can feel like pure relief — but there may be some fine print to that forgiveness. As of Jan. 1, 2026, following the expiration of a Biden-era provision that made student loan forgiveness tax-free, some borrowers who get their debt balance wiped away will now face a sizable tax bill.

Effectively, this means that borrowers “who qualify for student loan forgiveness in 2026 could face thousands of dollars in new taxes alongside their debt relief,” said Business Insider, marking a financial hit that some have dubbed the student loan “tax bomb.” Whether or not taxes will apply, however, depends on the specifics of your own student loan forgiveness situation.

When do you owe taxes on student loan forgiveness?

Forgiving a federal student loan balance, and the “possible resulting tax bomb, primarily impacts borrowers who use income-driven repayment plans,” said Intuit TurboTax. These are the federal student loan repayment plans under which you pay a certain amount of your discretionary income over a set period of time, after which any balance that remains gets forgiven.

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That said, whether or not you owe taxes for forgiveness under an income-driven repayment plan depends on when you enrolled in the plan and when your loans were forgiven. “Borrowers whose loans were forgiven between Jan. 1, 2021, and Dec. 31, 2025, are exempt from taxes on their forgiven loan balances,” as are those who were “enrolled in an IDR plan and eligible for forgiveness before the end of 2025,” even if their forgiveness “isn’t actually processed until 2026,” said Yahoo Finance.

On the other hand, “if your loans are eligible for forgiveness on or after Jan. 1, 2026, you will owe federal taxes on the forgiven balance,” said Yahoo Finance.

What types of loan forgiveness are tax-free?

Not all forms of loan forgiveness will lead to a tax bill. For instance, “if you follow the rules of programs like Public Service Loan Forgiveness, Teacher Loan Forgiveness and similar federal loan programs, any loan forgiveness you receive should not be taxable,” said Intuit TurboTax.

Other scenarios where loan forgiveness is tax-free include loans that were discharged due to permanent disability or death, or because of school closure or fraud.

How could student loan forgiveness impact your tax bill?

If your student loan forgiveness is subject to taxes, any amount you receive in forgiveness is considered taxable income. This may end up pushing some people into a higher tax, which could lead to them paying more in taxes overall.

The exact impact will depend on both the amount of debt forgiven and each borrower’s tax bracket, but it could be significant, considering the “average loan balance for borrowers enrolled in an IDR plan is around $57,000,” said CNBC. “For those in the 22% tax bracket, having that amount forgiven would trigger a tax burden of more than $12,000,” said CNBC, citing higher education expert Mark Kantrowitz. Meanwhile, “lower earners, or those in the 12% tax bracket, would still owe around $7,000” in that scenario.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.