Clients anticipating major student loan forgiveness in the new year could be in for an unwelcome tax bill. The American Rescue Plan Act of 2021, which exempted forgiven federal student debt from taxation over recent years, expired on Dec. 31, 2025. And without a legislative extension, the student loan "tax bomb" is back for 2026. Under the reinstated rule, canceled debt is treated as ordinary income, creating potentially significant liquidity strain. On a typical forgiven balance of $57,000, federal tax ...

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]

Key Takeaways An exemption that made student loan forgiveness tax-free ends in 2025.That means borrowers who complete the requirements for forgiveness in 2026 should prepare for a higher tax bill.Taxpayers who achieve the requirements for loan forgiveness before 2025 ends, however, will not pay taxes on it, even if their loan discharge is in 2026. If you expect to have your federal student loans forgiven in 2026, you should check now to see if you'll owe taxes on those funds. Under a temporary tax rule ...

The past year has been a tumultuous one for anyone trying to keep current with the state of student loans, marked by legal challenges, court rulings and a processing backlog in the millions. And December 31, 2025 is marking an unexpected deadline for action for a group of student loan borrowers qualified for loan forgiveness to act, or they’ll end up on the hook for thousands. Must Read Early December marked the end of the road for the Saving on a Valuable Education (SAVE) Plan, a Biden-era student loa ...

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]