Student Loan Forgiveness Comes With A Steep Price Tag As Tax Credits Expire
If a loan is forgiven, and the borrower is pushed into a higher tax bracket, their tax obligation could rise to $14,000-$17,000 or more.
Black News 
Borrowers who believe they are receiving federal student-loan forgiveness could face tax liabilities of up to $70,000 or more.
The financial liability is due to a change in tax law scheduled to take effect in early 2026, according to Forbes.
Under the 2021 American Rescue Plan, forgiven federal student loans were exempt from federal income tax through Dec. 31, 2025. Starting Jan. 1, 2026, without intervention, that exemption may expire. Borrowers whose remaining balances are forgiven after that year could be taxed on the forgiven amount.
According to Protect Borrowers analysis, if a loan is forgiven, and the borrower is pushed into a higher tax bracket, their tax obligation could rise to $14,000-$17,000 or more. The headline figure of $70,000 reflects average loan forgiveness for low-income borrowers under Income-Driven Repayment (IDR) plans.
On Nov. 10, Sen. Elizabeth Warren and other colleagues warned that the expiration of the cuts would adversely impact Americans. Sen. Warren and a group of Democratic lawmakers have urged the Treasury Department and IRS to deploy existing legal authorities.
“If neither the Trump administration nor the Republican-controlled Congress acts soon, families who earn student debt cancellation after paying their loans for decades will be hit with surprise tax hikes — as high as $10,000 in many cases — starting next tax year.”
The risk is especially acute for Black and Latina women, who entered repayment with higher balances. Black and Latina women are a large demographic in defaulted loans that are compounding interest daily.
The legislative clock is running. Congress must act to extend the tax exemption beyond 2025, or borrowers may essentially be handed a debt-forgiveness program that ends up inflating their debt.
Advocacy group Protect Borrowers estimates that a family earning around $50,000 that receives cancellation under an income-driven repayment plan could face additional federal tax liabilities between $5,800 and $10,000, Business Insider reported.
Until Congress acts, borrowers are advised to confirm the timing of their cancellation eligibility and consider tax-planning strategies, as 1.3 million borrowers could reach forgiveness after 2025 and face the tax hit.
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