student loan forgiveness 2026: Student loan forgiveness in 2026: What taxes you may owe and why

These plans include Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment, and you’ll typically have to make 20-25 years of payments. From 2026, this tax-free rule ends. So, if your loans are forgiven in 2026, you may have to pay more federal taxes. Some people eligible for pardons in 2025 have experienced delays due to lawsuits. The Department of Education said these people will not owe taxes even if their loans are forgiven in 2026.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, said borrowers will be forgiven starting in 2025. It expects the backlog to be cleared in early 2026. Buchanan added: “If someone [was] They will be eligible in 2025, for sure [get their forgiveness] As Investopedia points out, tax filing season is certainly upon us in March and April before it arrives.
Borrowers who qualify in 2025 do not need to take any action. Loan servicers handle the forgiveness and notify the IRS. Reporting has been paused during the tax-free period and will continue for these borrowers. While federal taxes are waived for 2025 borrowers, some states may still tax the forgiven amount.

Debtors who will be forgiven in 2026

Borrowers who qualify for forgiveness in 2026 or later will owe federal taxes on the forgiven amount in the following tax year. “You want to make sure you’re not surprised when you file your return, and as Investopedia points out, all of a sudden you’re told, ‘Gosh, you have to pay $2,000 more in taxes,'” Buchanan warned.

Borrowers who complete required payments in 2026 will receive a form 1099-C from their loan servicer in January 2027. This form lists the forgiven amount that must be reported as taxable income on a 2026 tax return filed in 2027. Buchanan advised borrowers to estimate how forgiveness would affect their tax bill using the applicable tax rate or tax bracket. Because loan forgiveness is considered taxable income, it can push some borrowers into a higher tax bracket, resulting in bills worth thousands of dollars.

state taxes

Buchanan explained: “Keep in mind that you won’t have to pay taxes on all products. [the loan forgiveness] because you’ll have other offset deductions and things like that that can significantly reduce the tax liability.” During the federal tax pause, many states also stopped taxing student loan forgiveness. It’s unclear whether all states will continue taxing forgiven loans in 2026, but Buchanan expects most will follow the IRS approach. Buchanan said: “I would anticipate that we probably won’t get guidance from states on what the 2026 requirements look like until after April or May. like. So it may be a few months or the middle of the year before we really know whether states have changed their positions. [on taxing loan forgiveness] or they keep them the same,” as Investopedia puts it.

FAQ

Q1. Will I owe federal taxes related to student loan forgiveness in 2026?

Yes, if your loans are forgiven in 2026, the forgiven amount is considered taxable income and must be reported on your tax return.

Q2. Will states tax student loan forgiveness in 2026?

In some states, forgiven loans may be taxable in 2026, but rules vary and guidance usually comes after April or May.