NEW YORK (AP) — It's been a confusing time for people with student loans. Collections restarted, then were put on hold. At the same time, borrowers had to stay on top of changes to key forgiveness plans. Last year, the long-contested SAVE plan introduced by the Biden administration ended with a settlement agreement. President Donald Trump’s “Big Beautiful Bill” introduced new borrowing limits for graduates and raised challenges to the Public Service Loan Forgiveness program. While several changes for stud ...

Core Insights - Clients expecting significant student loan forgiveness in 2026 may face unexpected tax liabilities due to the expiration of the American Rescue Plan Act of 2021, which previously exempted forgiven federal student debt from taxation [1][2] Tax Implications - Under the reinstated tax rule, canceled student debt is considered ordinary income, potentially leading to substantial tax bills. For an average forgiven balance of $57,000, federal taxes could range from approximately $7,000 to over $12,000, depending on the borrower's tax bracket [2] - The additional income from forgiven loans may elevate clients into higher tax brackets or trigger phaseouts of essential credits and deductions [2] Exceptions to Tax Liabilities - Certain borrowers may avoid tax implications if they qualified for forgiveness in 2025 but had their discharges delayed into 2026 for administrative reasons. Public Service Loan Forgiveness remains fully tax-exempt [3] Financial Planning Strategies - With the tax exemption removed, loan forgiveness should be viewed as a significant tax event rather than merely a financial benefit. Advisors are encouraged to conduct a "lowest total cost" analysis to determine if income-driven repayment forgiveness remains the most cost-effective option [4] - Despite potential tax bills, pursuing forgiveness may still be more beneficial in the long run compared to repaying the full debt. Advisors can add value by performing this analysis for clients [5] Timing and Payment History - The timing of loan forgiveness is crucial, as the tax bill is incurred in the year the loan is discharged. Advisors need to model the specific year of forgiveness, which has become more complex due to the removal of tracking tools on StudentAid.gov [5] - To assist clients, advisors must manually reconstruct payment histories and audit servicer records to determine qualifying months, allowing clients to adjust tax withholdings or estimated payments proactively [6]

Core Insights - Significant changes to student loans and repayment plans are set to take effect in 2026, particularly affecting first-time borrowers in the fall of 2026 [1][2] Group 1: New Repayment Plans - The Repayment Assistance Plan (RAP) will be introduced as a new income-driven repayment plan, available from July 1, 2026, allowing borrowers to adjust payments based on income [3] - Some borrowers may find RAP payments more affordable, with the government contributing at least $50 monthly to help reduce loan balances [4] - However, lower-income borrowers may face higher total costs under RAP, as it requires a minimum payment of $10 per month, eliminating the current option for $0 payments [5] Group 2: Impact on First-Time Borrowers - First-time student loan borrowers in the fall of 2026 will not have access to existing income-driven repayment plans, with RAP being the only option available upon graduation [6][7] - The average recent graduate borrower is expected to pay less under RAP compared to existing plans, but those with children may incur higher costs due to the minimum payment requirement [8] Group 3: New Loan Limits - The "One Big, Beautiful Bill" introduces new loan limits that generally reduce the amount and types of federal student loans available [11] - Parents of undergraduate students will face new limits on Parent PLUS loans, affecting nearly 30% of borrowers, while new graduate students will lose eligibility for PLUS loans [12][13] - Existing borrowers before June 30, 2026, will not be subject to these new limits and can continue borrowing under current terms [14] Group 4: Tax Implications - Loan forgiveness received in 2026 or later will be taxable, reversing the tax exemption that applied to borrowers reaching forgiveness thresholds between 2021 and 2025 [16][18] - Borrowers who qualify for forgiveness before 2026 but experience delays due to lawsuits will still benefit from tax-free forgiveness [17] Group 5: Changes to PSLF Eligibility - New rules finalized by the Trump administration will allow the Department of Education to deny Public Service Loan Forgiveness (PSLF) to certain organizations deemed "illegal," affecting nonprofit workers [19] - This rule could impact workers in hospitals or nonprofits focused on immigrant families and diversity initiatives, although legal actions may delay its implementation [20]

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]

Core Insights - The student loan landscape has faced significant turmoil over the past year, with legal challenges and a processing backlog affecting borrowers, culminating in a critical deadline of December 31, 2025, for those eligible for loan forgiveness [1] Group 1: SAVE Plan Developments - The Saving on a Valuable Education (SAVE) Plan, a Biden-era initiative linking debt repayments to borrower income, has been effectively terminated due to ongoing legal challenges, impacting seven million borrowers [2] - Borrowers enrolled in the SAVE program, as well as those who applied, must transition to alternative repayment plans due to the program's conclusion [2] - Current repayment options include Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE), with ICR and PAYE set to phase out by July 2028, aligning with the sunset of the SAVE program [3] Group 2: Tax Implications of Loan Forgiveness - Loan forgiveness under income-driven repayment (IDR) programs was exempt from taxation until the end of 2025, as per the American Rescue Plan Act of 2021, but this tax exemption will not be extended, leading to potential tax liabilities for borrowers starting January 1, 2026 [4] - A group of Democrat senators has urged the administration to utilize existing administrative authorities to mitigate the impending tax implications for working-class families facing the IDR "tax bomb" [5]

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]

Core Insights - The Department of Education has resumed student loan forgiveness for most income-driven repayment plans, but there is no confirmed date for when borrowers will receive their forgiveness [3] - Borrowers eligible for forgiveness in 2025 will not have to pay federal taxes on their discharged loans, provided they take necessary steps before the end of the year [4][5] Group 1: Loan Forgiveness Resumption - The Department of Education is processing tax-free loan discharges for borrowers under Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment plans [6] - Borrowers under the Saving for a Valuable Education plan are currently unable to receive forgiveness due to ongoing lawsuits [6] Group 2: Tax Implications - Borrowers who qualify for loan forgiveness in 2025 must ensure they take steps to avoid being taxed on their discharged loans, which could result in significant tax liabilities [5] - The temporary tax rule allowing tax-free forgiveness will end on January 1, 2026, creating urgency for borrowers to act [4] Group 3: Verification Steps - Borrowers should verify their repayment plan qualifies for forgiveness and ensure they have made the required number of payments, which is 240 or 300 months depending on the plan [10] - Borrowers can request a transfer of repayment plans through the Federal Student Aid website to ensure tax-free forgiveness [9]

Student loan forgiveness is resuming, but some borrowers need to take swift action on their student loans if they want to avoid potentially devastating tax consequences. https://t.co/yE6TvEtqaz (Photo: Drew Angerer via Getty Images) https://t.co/gqzYiMRYpS ...

A federal court has formally suspended a legal challenge over stalled student loan forgiveness, ruling that staying the proceedings was necessary due to the ongoing government shutdown. The move could have major financial repercussions for many borrowers. https://t.co/uQYUsMjv1t https://t.co/ggrsEQQgBM ...

Core Insights - Student loan debt affects nearly 43 million Americans, representing about 1 in 6 adults, with loan forgiveness providing significant relief for eligible borrowers [1] - The federal student loan system has undergone substantial changes since the start of President Trump's second term, with more updates anticipated [2] Federal Loan Forgiveness Programs - Four active federal loan forgiveness programs exist for borrowers based on employment or payment history: Income-Driven Repayment (IDR) Forgiveness, Public Service Loan Forgiveness (PSLF), Perkins Loan Cancellation, and Teacher Loan Forgiveness [3][7][11] - IDR plans allow borrowers to make reduced payments based on discretionary income and family size, with loan terms of 20 or 25 years, leading to forgiveness of remaining debt after the term [4][6] - PSLF is available for borrowers working full-time in qualifying nonprofit or government jobs, requiring 120 monthly payments for forgiveness [7] - Perkins Loan Cancellation offers forgiveness for borrowers in specific professions, such as teachers and first responders, with up to 100% of the loan forgiven based on years of service [9][10] IDR Plans - Borrowers can apply for three IDR plans: Pay As You Earn (PAYE), Income-Contingent Repayment (ICR), and Income-Based Repayment (IBR), with the ICR and PAYE plans phasing out by 2028 [5][6] - Payments made under IDR plans qualify for PSLF, enhancing the potential for forgiveness for public service workers [7] Teacher Loan Forgiveness - Eligible teachers can receive up to $17,500 in loan forgiveness after five consecutive years of full-time teaching in low-income schools, with a lower maximum of $5,000 for those who do not meet specific criteria [11] Loan Discharge Programs - Certain circumstances, such as total and permanent disability, school closure, or false certification by a school, can lead to loan discharge, with specific eligibility criteria for each situation [12][20][21] - An injunction currently prevents the Department of Education from processing applications for borrower defense to repayment and closed school discharges [14][18] State Forgiveness Programs - Some states offer their own loan forgiveness or repayment programs, which may apply to both federal and private loans, aimed at attracting workers in high-need areas [23] - Examples include Iowa's Rural Veterinarian Loan Repayment Program, New Mexico's Public Service Law Loan Repayment Program, and New Jersey's STEM Loan Redemption Program, providing significant financial assistance for eligible professionals [24]