{"id":19873,"date":"2025-08-25T13:24:08","date_gmt":"2025-08-25T13:24:08","guid":{"rendered":"https:\/\/finderica.com\/?p=19873"},"modified":"2025-08-25T13:24:08","modified_gmt":"2025-08-25T13:24:08","slug":"student-loan-forgiveness-delays-may-lead-to-tax-bills-for-borrowers","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=19873","title":{"rendered":"Student loan forgiveness delays may lead to tax bills for borrowers"},"content":{"rendered":"<div id=\"RegularArticle-ArticleBody-5\" data-module=\"ArticleBody\" data-test=\"articleBody-2\" data-analytics=\"RegularArticle-articleBody-5-2\"><span class=\"HighlightShare-hidden\" style=\"top:0;left:0\"><\/span><\/p>\n<div class=\"InlineImage-imageEmbed\" id=\"ArticleBody-InlineImage-108188716\" data-test=\"InlineImage\">\n<div class=\"InlineImage-wrapper\">\n<div>\n<p>Damircudic | E+ | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n<h2 class=\"ArticleBody-subtitle\"><a id=\"headline0\"><\/a>Delayed loan relief may trigger a new &#8216;penalty&#8217;<\/h2>\n<div class=\"group\">\n<p>The\u00a0<a href=\"https:\/\/www.whitehouse.gov\/american-rescue-plan\/\" target=\"_blank\" rel=\"noopener\">American Rescue Plan<\/a>\u00a0Act of 2021 made\u00a0<a href=\"https:\/\/studentaid.gov\/manage-loans\/forgiveness-cancellation\" target=\"_blank\" rel=\"noopener\">student loan forgiveness<\/a>\u00a0tax-free at the federal level through\u00a0the end of 2025. Trump&#8217;s &#8220;big beautiful bill&#8221; did not extend or make permanent that broader provision.<\/p>\n<p>Without action from Congress, student loan borrowers who get their debt forgiven under the U.S. Department of Education&#8217;s income-driven repayment plans, or IDRs, would face a federal tax bill again starting in 2026. IDR plans cap people&#8217;s monthly payments at a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years.<\/p>\n<p><strong>More from Personal Finance:<\/strong><br \/>Trump floats tariff &#8216;rebate&#8217; for consumers<br \/>Student loan forgiveness may soon be taxed again<br \/>Student loan borrowers \u2014 how will the end of the SAVE plan impact you? Tell us<\/p>\n<p>The recent delays to loan forgiveness are a result of multiple changes. Among them:<\/p>\n<ul>\n<li>The Education Department said\u00a0<a href=\"https:\/\/studentaid.gov\/announcements-events\/idr-court-actions\" target=\"_blank\" rel=\"noopener\">earlier this summer<\/a>\u00a0that it was pausing the loan discharge component on the Income Based Repayment, or IBR, plan, while it responds to recent court orders. That freeze remains in place. &#8220;They have given no guidance as to when they may resume,&#8221; said Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York.<\/li>\n<\/ul>\n<ul>\n<li>Loan forgiveness is also paused on other IDR plans, including the Income-Contingent Repayment, or ICR, plan, the Education Department says. Meanwhile, millions of borrowers enrolled in a new repayment plan \u2014 which was supposed to expedite loan forgiveness for many borrowers \u2014 under the Biden administration that is now defunct.<\/li>\n<\/ul>\n<ul>\n<li>As of the end of July, <a href=\"https:\/\/storage.courtlistener.com\/recap\/gov.uscourts.dcd.278527\/gov.uscourts.dcd.278527.39.0.pdf\" target=\"_blank\" rel=\"noopener\">more than 1.3 million applications<\/a> were pending at the Education Department from borrowers trying to access an IDR plan, recent court documents show. Many of these borrowers are likely trying to leave a program in which loan forgiveness is paused or unavailable.<\/li>\n<\/ul>\n<p>Unless the U.S. Department of Education &#8220;acts quickly&#8221; to forgive the debt of eligible borrowers, they &#8220;could face significant tax bills on debt relief that should have been granted to them without penalty,&#8221; lawmakers, including Sen. Bernie Sanders, I-Vt., recently wrote in <a href=\"https:\/\/www.sanders.senate.gov\/wp-content\/uploads\/08.18.25-Letter-on-IBR-forgiveness-Pause.pdf\" target=\"_blank\" rel=\"noopener\">a letter<\/a> to Education Secretary Linda McMahon. <\/p>\n<\/div>\n<h2 class=\"ArticleBody-subtitle\"><a id=\"headline1\"><\/a>Loan forgiveness tax liability could be significant<\/h2>\n<div class=\"group\">\n<p>The tax bill on student loan forgiveness can be significant.<\/p>\n<p>The average loan balance for borrowers enrolled in an IDR plan is around $57,000, said higher education expert Mark Kantrowitz.<\/p>\n<p>For those in the 22% tax bracket, having that amount forgiven would trigger a tax burden of over $12,000, Kantrowitz estimates. Lower earners, or those in the 12% tax bracket, would still owe around $7,000.<\/p>\n<\/div>\n<div class=\"group\">\n<p>Borrowers could also be on the hook for state taxes. Many states mirror the federal government&#8217;s tax policy on student loans, meaning more states may start to levy the aid next year as well, experts say.<\/p>\n<p>Debt relief granted under the Public Service Loan Forgiveness program is not subject to federal taxes, although borrowers may owe their state a bill. As of July 31, there was a <a href=\"https:\/\/storage.courtlistener.com\/recap\/gov.uscourts.dcd.278527\/gov.uscourts.dcd.278527.39.0.pdf\" target=\"_blank\" rel=\"noopener\">72,730-person backlog<\/a> of borrowers waiting to have the Department of Education help them access their PSLF loan forgiveness.<\/p>\n<\/div>\n<h2 class=\"ArticleBody-subtitle\"><a id=\"headline2\"><\/a>What to do about the possible tax bill<\/h2>\n<div class=\"group\">\n<p>Borrowers who expect they&#8217;ll become eligible for student loan forgiveness in 2025 &#8220;should save all payment records with their servicers,&#8221; Nierman said.<\/p>\n<p>&#8220;If necessary, they can use this information to prove they were entitled to forgiveness during a year in which it is not subject to tax,&#8221; she said.<\/p>\n<p>For borrowers who anticipate the relief after Jan. 1, 2026, Nierman recommends starting to plan for the tax bill by salting away some money when you can in preparation.<\/p>\n<\/div>\n<div class=\"InlineImage-imageEmbed\" id=\"ArticleBody-InlineImage-108114923\" data-test=\"InlineImage\">\n<div class=\"InlineImage-wrapper\">\n<div>\n<p>The headquarters of the Department of Education on March 12, 2025 in Washington, DC.<\/p>\n<p>Win McNamee | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"group\">\n<p>Borrowers often don&#8217;t have to pay the entire tax bill in one sum, she added.<\/p>\n<p>&#8220;They can request a plan through the IRS to spread the payments over a longer period of time,&#8221; Nierman said. Meanwhile, if your liabilities exceed your assets or you&#8217;re dealing with a serious financial hardship, you may be able to reduce or eliminate the bill altogether, she said.<\/p>\n<\/div>\n<\/div>\n<p><a href=\"https:\/\/www.cnbc.com\/2025\/08\/25\/student-loan-forgiveness-delays-tax-bills.html\" target=\"_blank\" rel=\"noopener\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Damircudic | E+ | Getty Images Delayed loan relief may trigger a new &#8216;penalty&#8217; The\u00a0American Rescue Plan\u00a0Act of 2021 made\u00a0student loan forgiveness\u00a0tax-free at the federal level through\u00a0the end of 2025. Trump&#8217;s &#8220;big beautiful bill&#8221; did not extend or make permanent that broader provision. Without action from Congress, student loan borrowers who get their debt forgiven<\/p>\n","protected":false},"author":1,"featured_media":19874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[196],"tags":[1889,378,73,541,2916,240,308,97],"class_list":{"0":"post-19873","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-finance-news","8":"tag-bills","9":"tag-borrowers","10":"tag-delays","11":"tag-forgiveness","12":"tag-lead","13":"tag-loan","14":"tag-student","15":"tag-tax"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/19873","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19873"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/19873\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/19874"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19873"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19873"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19873"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}