Some Student Loan Forgiveness Can Now Be Taxed

January 1, 2026 – A temporary rule enacted under the American Rescue Plan Act (ARP) of 2021 excluding discharged student loan debt from taxation has expired as of December 31, 2025. The provision under ARP stipulated that modified or discharged student loan debt (federal, institutional, or private) during the period of December 31, 2020, through December 31, 2025, would be excluded from an individual’s income when they file their tax returns.

Now that that provision has expired, some borrowers who reach forgiveness milestones in 2026 and beyond could be impacted by this change and could potentially leave them with a hefty tax bill. It is important to note, however, that this provision does not affect all types of student loan forgiveness. Federal Student Aid notes, “According to the Internal Revenue Service (IRS), student loan amounts forgiven under [Public Service Loan Forgiveness] PSLF or TEPSLF aren’t considered income for tax purposes. For more information, check with the IRS or a tax advisor.” Additionally, a recent settlement agreement between ED and the American Federation of Teachers (AFT) ensures that borrowers who became eligible for forgiveness in 2025 will not owe federal taxes on the forgiven amounts, even if their debts are discharged after 2025.

Additional Reading:

NASFAA | Welcome to 2026: Some Student Loan Forgiveness is Now Taxable

CNBC | Borrowers won’t owe federal income taxes on student debt forgiven in 2025

Check Your Repayment Status

Log on to Federal Student Aid to understand whether you are in default, delinquent, or in a repayment plan — and check if wage garnishment or tax refund offset notices apply to you.

Explore Alternative Repayment Plans

With SAVE ending and Income-Driven Repayment (IDR) options changing, consider whether Income-Based Repayment (IBR) or other plans suit your income and goals.

Plan for Potential Tax Liability

If you’re nearing forgiveness under an IDR plan, consult a tax professional about the impact of taxable forgiveness in 2026.

Stay Informed on Processing Delays

Because of legal challenges and plan revisions, applications and forgiveness processing may be delayed — stay in close contact with your servicer.

Our Webinar Series Launches in February 2026!

Please join our office as we partner with Student Debt Crisis Center (SDCC) to launch the first of a free five-part webinar series dedicated to helping Connecticut borrowers stay informed on all the upcoming changes to student loan repayment. The series will run monthly through April 2026. Registration information for the first in the series is below.

REMINDER: Bookings is Live!

Just a quick reminder that our online appointment portal launched last month! We've had a great response and we're so excited we can offer this convenient way to connect with Connecticut borrowers. A link to the portal has also been added to our navigation bar below for any future questions you may have. We look forward to continuing to connect with you!