Starting in the 2026 tax year, federal student loan borrowers who earn cancellation under an Income-Driven Repayment (IDR) plan could be forced to pay federal income tax on their cancelled debt. Under the Higher Education Act, borrowers can earn cancellation of their remaining balances by making 20 years or more of qualifying payments in an IDR plan.
Protect Borrowers released a report showing that this tax change could foist a massive “tax bomb” on families, forcing them to pay as much as an additional $12,000 in federal taxes. This tax bomb could hit between 2 and 3 million Americans over the next 10 years, most of whom will earn less than $60,000 a year and have almost no savings. The report comes after Congress failed to extend an exemption for IDR cancellation, which expired on December 31, 2025.
Read the Report: Fleeced at the Finish Line: The Tax Bomb Coming for IDR Borrowers
Read the Press Release: New Report Reveals Massive Student Loan Cancellation “Tax Bomb” Could Hit 3 Million Americans Over Next Decade, Doubling or Even Tripling Families’ Tax Bills in Next Tax Year Alone
Read the Substack/Blog: Trump’s One Big Beautiful Bill Left A “Tax Bomb” for Families Who Earn Student Debt Relief. Congress Can Still Fix This.