Federal Student Loan Borrowers Face Potential 'Tax Bomb' on Debt Relief Starting 2026
A new report by Protect Borrowers indicates that federal student loan borrowers receiving debt relief under an Income-Driven Repayment (IDR) plan could face a significant 'tax bomb' starting in the 2026 tax year. This is due to the expiration of a 2021 provision that made student loan forgiveness tax-free. The analysis projects that between 2 to 3 million Americans, predominantly earning less than $60,000 annually and with minimal savings, could be affected over the next decade. Families might see their tax bills double or even triple, while single borrowers could allocate up to a quarter of their earnings to higher tax bills. For instance, a married couple with two children earning $60,000 could face approximately $7,200 in additional federal taxes and lost credits if $50,000 in student debt is forgiven. The additional costs modeled in the report range from $6,000 to nearly $12,000, depending on income, tax status, and family size. Borrowers in Southern states like Louisiana, Mississippi, and Arkansas are...
