"On January 1, a provision in former President Joe Biden's 2021American Rescue Plan that made student-loan forgiveness tax-free expired. It means that student-loan borrowers who qualify for student-loan forgiveness in 2026 could face thousands of dollars in new taxes alongside their debt relief. It's a concern for borrowers who are close to reaching their qualifying number of payments on an income-driven repayment plan or the Public Service Loan Forgiveness program, which forgives student debt for government and nonprofit workers after 10 years of qualifying payments."
"For example, Misty Knapp, a 59-year-old student-loan borrower enrolled in PSLF, told Business Insider that she's just six payments away from reaching debt relief, but she doesn't think she can afford the taxes that would come with the forgiveness. "I don't know what that's going to look like, but if I'm taxed on the amount that's forgiven, that would be a lot of money," Knapp said."
The tax-free treatment of student-loan forgiveness included in the 2021 American Rescue Plan expired on January 1. Borrowers who become eligible for loan forgiveness in 2026 could face significant federal tax liabilities on the amounts forgiven. Borrowers nearing the qualifying payment counts for income-driven repayment plans or Public Service Loan Forgiveness express concern about being unable to afford associated taxes. The Department of Education said borrowers who complete required payments before 2026 would not be taxed. A backlog of income-driven repayment applications in 2025 left some borrowers waiting for relief, and the department reached an agreement with the American Federation of Teachers to protect those who reached thresholds in 2025.
Read at Business Insider
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