Protect Borrowers Warns of Student Loan Tax Bomb
Protect Borrowers warns that student-loan borrowers may face tax bills between $6,000 and $12,000 following the expiration of a federal tax exemption.
The advocacy group Protect Borrowers released a report Wednesday warning that student-loan borrowers receiving debt relief over the next decade may face significant tax increases. This potential tax bomb follows the 2025 expiration of a provision in the American Rescue Plan, enacted under former President Joe Biden, which had previously made forgiven debt exempt from federal income tax.
Under 2026 tax rules, borrowers now face federal taxes on canceled debt. Protect Borrowers estimates that these additional costs could range from $6,000 to $12,000 depending on the scenario. The group expects the most severe impacts in Louisiana, Mississippi, and Arkansas, where borrowers typically have higher average balances and lower incomes.
Democratic lawmakers have urged the United States Department of the Treasury to restore the tax-free provision to prevent the undermining of income-driven repayment programs. Policy analyst Jennifer Zhang argued that the promise of debt relief means little if borrowers face massive tax bills that keep them trapped in debt.
