Student Loan Forgiveness Tax Bomb Calculator

Generally, yes for ordinary IDR forgiveness in 2026 or later. The broad ARPA exclusion ended December 31, 2025, so a forgiven RAP, IBR, PAYE, ICR, or legacy SAVE balance is generally cancellation-of-debt income. PSLF remains federally tax-free, as do qualifying death and total-and-permanent-disability discharges.

The tax bomb is the lump-sum income tax you can owe in the year your balance is forgiven. The forgiven amount is added to your other income and taxed at your marginal rates, plus any state tax. Because income-driven repayment forgiveness can leave a large balance after 20 or 25 years, the resulting one-year tax bill can be substantial.

The American Rescue Plan Act's exclusion for forgiven student loans applies to discharges through December 31, 2025. Forgiveness occurring on or after January 1, 2026 falls outside that window and is taxable under current federal law.

RAP forgives a remaining balance after 360 qualifying monthly payments. IBR uses 20 years for borrowers whose first federal loan was disbursed on or after July 1, 2014, or 25 years for older IBR borrowers. PAYE uses 20 years and ICR uses 25 years while those legacy plans remain available. SAVE projections in this tool are historical only because SAVE ended in 2026.

It varies by state. States with no broad income tax — such as Texas, Florida, Washington, Nevada, and Tennessee — impose no state tax on the forgiven amount. Other states may tax it at their own rates, so your total tax bomb is the federal tax plus any applicable state tax.

No. A court-approved settlement ended SAVE in March 2026. Starting July 1, servicers began sending SAVE borrowers notices giving them at least 90 days to choose another legal plan; borrowers who do not act are assigned to Standard or Tiered Standard. This calculator keeps SAVE only for historical projections and now models RAP's 30-year timeline, unpaid-interest subsidy, and matching principal payment.

No. This calculator estimates the tax bomb on ordinary income-driven repayment forgiveness. Public Service Loan Forgiveness is federally tax-free under IRC §108(f)(1), and qualifying death or total-and-permanent-disability discharges are also excluded after 2025. RAP payments can count toward PSLF, so borrowers pursuing PSLF should not use a taxable RAP forgiveness projection as their expected outcome.

The forgiven balance is stacked on top of your projected income in the forgiveness year, and federal tax is computed on the combined total using the ordinary income brackets. The extra tax caused by adding the forgiven amount — the difference with and without the forgiveness — is the federal portion of your tax bomb.