Student loan forgiveness in 2026: What taxes you may owe and why

If your federal student loans are going to be forgiven in 2026, check now because you might have to pay federal taxes on the forgiven money. During the pandemic (2021–2025), people who had certain repayment plans did not have to pay taxes when their loans were forgiven.

These plans include Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment, and you usually had to make 20–25 years of payments. Starting in 2026, this tax-free rule ends. So, if your loans are forgiven in 2026, you may have to pay more federal taxes. Some people who qualified for forgiveness in 2025 had delays because of court cases. The Department of Education said those people won’t owe taxes, even if their loans are forgiven in 2026.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, said borrowers from 2025 have started receiving forgiveness. He expects the backlog to be cleared in early 2026. Buchanan added, "If someone [was] eligible in 2025, they will certainly [get their forgiveness] before tax filing season is really upon us, in March and April for sure", as stated by Investopedia.


Borrowers who qualified in 2025 do not need to take any action. Loan servicers handle forgiveness and notify the IRS. Notifications were paused during the tax-free period and will continue for these borrowers. While federal taxes are waived for 2025 borrowers, some states may still tax the forgiven amount.

Borrowers who will receive forgiveness in 2026

Borrowers who qualify for forgiveness in 2026 or later will owe federal taxes on the forgiven amount in the next tax year. Buchanan warned, "You do want to make sure that you are not surprised when you file your return, and all of a sudden you're told, 'Gosh, you need to make another $2,000 in tax payments”, as stated by Investopedia.

Borrowers who finish the required payments in 2026 will get a 1099-C form in January 2027 from their loan servicer. This form lists the forgiven amount, which must be reported as taxable income on the 2026 tax return filed in 2027. Buchanan advised borrowers to estimate how forgiveness will affect their tax bill using their effective tax rate or tax bracket. Because loan forgiveness is considered taxable income, it could push some borrowers into a higher tax bracket, leading to bills of thousands of dollars.

State taxes

Buchanan explained, "Keep in mind that you're not going to have to pay taxes on all of [the loan forgiveness] because you would have other offsetting deductions and things like that that could materially reduce that tax liability". During the federal tax pause, many states also paused taxing student loan forgiveness.

It’s unclear whether all states will resume taxing forgiven loans in 2026, but Buchanan expects most to follow the IRS approach. Buchanan said, "I would anticipate that it probably won't be until after April or May that you'll get guidance from states about what the 2026 requirements look like. So it may be several months or the middle of the year before we really know if states are changing their positions [on taxing loan forgiveness] or they're keeping them the same", as stated by Investopedia.

FAQs

Q1. Will I owe federal taxes on student loan forgiveness in 2026?

Yes, if your loans are forgiven in 2026, the forgiven amount is considered taxable income and must be reported on your tax return.

Q2. Do states tax student loan forgiveness in 2026?

Some states may tax forgiven loans in 2026, but rules may vary and guidance usually comes after April or May.