What Taxes on Your Student Loan Forgiveness Will Look Like in 2026

Core Insights - Borrowers expecting federal student loan forgiveness in 2026 should prepare for potential tax liabilities on the forgiven amounts due to changes in tax rules starting in 2026 [1][3][10] Tax Implications - A temporary tax exemption for borrowers eligible for loan discharge under income-driven repayment plans from 2021 to the end of 2025 allows them to avoid taxes on forgiven loans [2][4] - Starting in 2026, borrowers who qualify for forgiveness will face federal taxes on the forgiven amounts, which could lead to significantly higher tax bills [3][11] - Borrowers who meet forgiveness requirements in 2025 will not owe taxes on their forgiveness, even if processed in 2026 [5][10] Processing and Notifications - The Department of Education has resumed granting loan forgiveness, and borrowers eligible in 2025 are expected to receive their forgiveness before the tax filing season in early 2026 [6][7] - Loan servicers will handle the processing of forgiveness and notify the IRS, but notifications for tax-free forgiveness will continue for those eligible in 2025 [7] State Tax Considerations - While federal taxes on forgiveness will apply to borrowers in 2026, some states may still impose taxes on forgiven amounts regardless of the federal exemption [8][15] - It remains uncertain if all states will revert to taxing forgiveness after 2025, but most are expected to align with federal tax codes [16][17]