Possible tax changes to be aware of if you have student loans
Some provisions that affect student loan borrowers could be modified, extended or allowed to expire in the coming years. If you have student loans you’ll want to pay attention to these potential tax law changes.
Depending on your situation, these changes could affect how much you owe in taxes, your eligibility for deductions and your overall student debt.
Tax-Free Student Loan Forgiveness
The 2021 American Rescue Plan Act made student loan forgiveness tax-free at the federal level until the end of 2025. This provision applied to loan balances forgiven between 2021 and the end of 2025, exempting those loans from federal taxes.
Because the provision wasn’t extended, beginning in 2026, the loan balances canceled under income-driven repayment (IDR) plans are once again considered taxable income for federal income tax. This change could lead to a higher federal tax bill. For example, if you had $50,000 in student loans forgiven, you may now have to report that amount as taxable income on your federal tax return.
Parent PLUS Loans
The One, Big Beautiful Bill Act made some pretty big changes to federal student loan programs, which takes effect on July 1, 2026. One of those changes is that, after July, Parent PLUS loans will be capped at $20,000 per student each year, with a $65,000 lifetime limit per student. In other words, parents can no longer borrow up to the full cost of attendance like before.
That said, existing Parent PLUS borrowers who have borrowed before July 1, 2026, can continue with the existing limits for three more years or until the student’s degree ends.
Lifetime Borrowing Limits
Another big change under the OBBBA is the new lifetime limit for student borrowers. This new limit of $257,500 includes all Direct Subsidized and Unsubsidized Loans for undergraduate, graduate, and professional study.
If you’re still in undergrad, the new $257,500 lifetime borrowing limit most likely won’t affect your ability to pay for a bachelor's degree. But if you do plan on pursuing graduate, law, medical, or other degrees, you’ll want to pay attention since every dollar you borrow today could reduce the amount of federal aid available later in your academic career.
How To Prepare for Student Loan Changes
The July 1 effective date has already passed. If you’re in school or are currently paying off your student loan debt, make sure you log into studentaid.gov to check your current federal loan totals so you know how they fit within the new lifetime cap. This is especially important if you plan to pursue more education after getting your undergrad. You’ll also want to review this info with your parents if they’ve taken out Parent PLUS loans.
If you're worried about how these changes could affect you, meet with your school's financial aid office. They can help you understand your current borrowing costs and identify scholarships or grants that could reduce your need for more student loans.