Core Points - A significant tax burden is expected to impact student loan borrowers starting January 1, 2026, particularly those under income-driven repayment (IDR) plans seeking debt forgiveness [1][3] - The average student debt for borrowers under IDR plans is approximately $49,321, with potential tax liabilities ranging from $5,800 to $10,000 upon forgiveness [2][3] - The American Rescue Plan Act (ARPA) of 2021 currently exempts forgiven IDR loans from taxes, but this provision will expire at the end of 2025, leading to the anticipated "tax bomb" [4][5] Tax Bomb Effects on Household Budgets - Borrowers who have made regular payments for 20 or 25 years may have their remaining loan balance forgiven, but the expiration of tax exemptions could create financial strain [4] - Many households, with a median savings of $600, are ill-prepared for unexpected tax bills that could reach thousands of dollars [5] - A survey indicates that 37% of Americans cannot cover a $400 emergency expense, highlighting the financial vulnerability of many borrowers [6]