Student loan forgiveness could hike tax bill for borrowers, study finds

A new study says tax bills could triple for people who receive student loan forgiveness through income-driven repayment (IDR) plans.

Previously, forgiven student loans were exempt from federal income tax, but that provision expired at the end of 2025.

An average married couple with two dependents earning around $60,000 could see their tax bill go up by $7,200, according to Protect Borrowers , a nonprofit group that advocates for debt relief.

Lower-income families, those making around $40,000, would see the biggest increase, with their tax liability growing 11 times their usual rate.

And single borrowers could see 1 out of 4 of their dollars earned go to federal taxes after student loan debt relief through IDR, the study found.

The states that would be hit the hardest, according to the report, are Louisiana, Mississippi, Arkansas, West Virginia, Oklahoma and New Mexico.

“The promise of IDR cancellation has always been a critical aspect of the federal student loan safety net, aimed at ensuring that student loan debt is not a lifelong obligation. However, for decades, IDR cancellation has always come with a catch — a massive tax bill,” the report said.

“Treating such cancelled debt as taxable income will hit many borrowers with an unprecedented tax bomb and force them to replace their debt to the U.S. Department of Education with debt to the Internal Revenue Service (IRS),” it added.