IDR Borrowers Face $6,000 to $12,000 Tax Bill
If your income-driven repayment loan is discharged in 2026, the canceled balance will likely be taxed as income.
Updated on Nov. 5, 2026 in Financial Aid
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Should canceled student loan debt be exempt from federal income taxes?
Student loan borrowers whose income-driven repayment (IDR) loans are discharged in 2026 face roughly $6,000 to $12,000 in added federal taxes, after a pandemic-era tax exemption for discharged student debt expired at the end of 2025. Advocates are urging Congress to permanently exempt these discharged loans.
Why it matters
Under the American Rescue Plan Act, discharged student loan debt was exempt from federal income taxes from December 31, 2020, to December 31, 2025, but Congress let that provision expire, so discharged IDR balances are again treated as taxable income for borrowers whose loans are forgiven in 2026 and beyond.
The added federal tax on a discharged IDR loan is estimated at $6,000 to $12,000, with a married borrower with two dependents owing an average of $7,206. The average discharged IDR loan is worth about $50,000, and most IDR borrowers earn less than $60,000 a year.
The players
Protect Borrowers
A nonprofit advocacy group that pushes for federal student loan borrower protections and has called on Congress to permanently exempt discharged IDR loans from federal taxes.
President Donald Trump
The current President of the United States, who holds veto power over any legislation that would change the tax treatment of discharged student loans.
The details
Under income-driven repayment, a remaining balance is canceled after years of qualifying payments, and that canceled amount is counted as taxable income in the year it is discharged. Because the pandemic-era exemption ended, borrowers whose IDR loans are discharged in 2026 will see the canceled balance added to their taxable income on their federal return, which can push the tax bill up by thousands of dollars. Protect Borrowers has asked lawmakers to exempt discharged IDR loans through the next budget reconciliation process.
Timeline
December 31, 2020 to December 31, 2025: Discharged student loan debt was exempt from federal income taxes.
November of the prior year: Democratic Senators urged the Trump administration to exempt canceled IDR loans from income taxation.
Following Tuesday's midterm elections: Democrats are set to gain control of both chambers of Congress.
April 2027: Increased tax bills come due for IDR borrowers.
Education Landscape
The American Rescue Plan Act's tax exemption for discharged student debt ran only from December 31, 2020, to December 31, 2025, and its expiration has returned IDR forgiveness to taxable income. The change sits within a broader debate over how federal student loan relief is taxed and who bears the cost.
If you hold an IDR loan that may be discharged in 2026, plan for a federal tax bill that could be several thousand dollars higher than in recent years. Ask your loan servicer or a qualified tax adviser how a discharge would affect your return before the next filing season.
The takeaway
Discharged IDR loan balances are once again taxable federal income following the expiration of the pandemic-era exemption, so borrowers nearing discharge should plan ahead. Watch for congressional action on a permanent exemption, and consider raising the tax question with a qualified adviser.
Further reading
Explore more Financial Aid guidance on how federal student loan relief is treated and what borrowers should expect.
Source note: This article includes information reported by Higher Ed Dive.
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Should canceled student loan debt be exempt from federal income taxes?
