Families could owe despite student loan forgiveness
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North Dakota residents who qualify to have their federal student loans forgiven could face thousands of dollars in additional tax costs, potentially undermining the financial relief they have spent decades working toward, according to a new report from the advocacy group Protect Borrowers, which labeled the changes as a “tax bomb” with the potential to hit families with limited incomes and savings especially hard.
Jennifer Zhang, policy, research and data analyst for Protect Borrowers, noted those who qualify for Income-Driven Repayment forgiveness made less than $50,000 in 2022.
“By and large, the people who will be forced to pay these tax bills will not be able to afford them,” Zhang said.
The report estimated a married North Dakota borrower with two children could face more than $5,800 in additional tax liability and lost credits. For a single parent with two children, the added tax costs could exceed $9,600.
The temporary federal tax exemption for most student loan forgiveness expired at the end of 2025, which means qualifying debt forgiven in 2026 or later may now be treated as taxable income. Zhang pointed out the financial consequences could extend well beyond the initial tax bill.
“They’re probably going to have to take on all kinds of debt to try to make ends meet, to try to pay what they can, and it’s going to push them into even greater financial desperation and financial distress,” Zhang said.
Protect Borrowers estimates 2 million to 3 million Americans could face higher tax bills over the next decade, with some households seeing their taxes double or triple.
Zhang added the figures do not account for any penalties or interest which may accrue on the tax bills. The organization is calling on Congress to exempt forgiven federal student loan debt from taxation, arguing borrowers should not face a new financial burden after completing decades of payments.
“When you try to paint the picture of what life looks like on the other side of the cliff, it’s very grim. What we’re trying to do is push in Congress to pass legislation to fix this before tax bills come due next April,” Zhang said.
Support for this reporting was provided by Lumina Foundation.