What are student loan forgiveness taxes starting in 2026?

Beginning in 2026, many federal income-driven repayment discharges will be treated as taxable income at the U.S. federal level. Borrowers may receive a 1099-C and owe income tax on the forgiven amount. Public Service Loan Forgiveness stays tax-free. Planning ahead can prevent penalties and smooth cash flow when the bill arrives.

Does Public Service Loan Forgiveness remain tax-free?

Yes. Under current law, PSLF remains tax-free. The change in 2026 mainly affects IDR plan discharges, including SAVE. If forgiveness completes in 2025, ARPA’s tax-free treatment still applies. Confirm your program status, timing, and documentation before year-end 2025 to reduce exposure and avoid unexpected student loan forgiveness taxes.

How big could the 2026 tax bill be for IDR forgiveness?

It depends on your tax bracket and total income. The forgiven balance is added to income and taxed at your marginal rate. Some borrowers may qualify for the insolvency exception, but proof is required. Estimating liability, adjusting withholding, or using quarterly payments can help manage the tax bomb 2026 impact.

Why should Canadian investors care about this U.S. tax change?

Taxable IDR discharges can reduce U.S. household cash, trim discretionary spending, and lift demand for tax services. This affects revenue and credit trends for consumer, payments, and advisory companies with U.S. exposure. Monitoring these shifts helps Canadian investors position portfolios for 2026 and the following filing season.

Global Market Insights

January 03: Student Loan Forgiveness Tax Bomb Returns in 2026

ByHuzaifa Zahoor January 4, 2026January 4, 2026

Student loan forgiveness taxes are back in 2026 as the ARPA exemption ends on December 31, 2025. That means federal income-driven repayment discharges may count as taxable income starting in 2026, while any eligible relief completed in 2025 remains tax-free. For Canadian investors, this shift could squeeze U.S. consumers, affect credit metrics, and lift demand for tax services. We explain how the IDR forgiveness tax works, who still gets tax-free relief, and what the “tax bomb 2026” could mean for portfolios.