I received a letter last month that my loans qualify for IDR forgiveness (My Aid data shows I was eligible in 2024). I'm at 111/120 PSLF so I try to OPT OUT because I'm scared of the tax bomb. I thought I had opted out before the deadline but it went through anyway because it takes 120 days to process the opt out? Anyway, will I be taxed or not? I am seeing others with a March 2026 discharge date with the 2024 or 2025 date on their FSA. Mine hasn't hit yet FSA yet. Mohela is closed. Should I cancel the opt out and just go with it? I'm looking at 150K to IRS. I only make about $60,000/yr. I'm so confused!
Help! My loans were discharged via IDR forgiveness but will I get a tax bomb?
byu/Pangaeaworld inStudentLoans
Posted by Pangaeaworld
6 Comments
If you reached forgiveness before 2026 then it wouldn’t be federally taxed.
If discharged this year and not PSLF then it will likely be taxable. With 9 payments left for PSLF forgiveness it is probably worth fighting for the opt out.
There is a chance that since your loans are currently treated as PSLF they would be treated as a PSLF forgiveness regardless of number of payments left officially. Fingers crossed for you.
PLSF isn’t taxable at the federal level, regardless of discharge year. If your loans are forgiven via regular IDR forgiveness, they’ll be taxable at the federal level if discharged in 2026 or later. Whether loan forgiveness is taxed at the state level depends on the state. Keep in mind that the IRS offers payment plans of up to 72 months if you do owe federal taxes. You won’t have to pay a lump sum. There’s hardly ever a situation where avoiding the tax bomb makes more financial sense than accepting the loan forgiveness.
There is no way you would owe $150K in taxes unless you borrowed a million dollars in federal loans
The most important thing you need to do is find out when you reached your 300 months of eligibility with the one-time adjustment. Find out this information on the [StudentAid.gov](http://StudentAid.gov) site as well as confirming it with your servicer. If it happened before January 1, 2026, then you WILL NOT owe taxes on the forgiven amt.
I get being afraid of a tax bomb. But it sounds like you don’t understand it well.
In a taxable forgiveness situation,
1) Any amount forgiven gets treated as income and then you get taxed on that. So you’ll owe 20-40% of the amount forgiven.
2) The IRS has a few ways you might explore to avoid this. I don’t know your specific info, so I don’t know what you may or may not qualify for. It is worth talking to an actual tax professional about your options here.
3) assuming you do owe the entire 20-40%, the IRS is more than happy to put you on a payment plan.
Like with your loans themselves, the key is to get informed and stay in front of the issue.
I am also Mohela- the best way to find out the date you satisfied your loan (that is the date they are honoring- NOT the discharge date) is to go to the Payments and Billing Tab at the top of the main page. Then click on Account History. My payments were reversed starting in June 2024- you’ll see an overall number at the top in the negative for what you’ll be reimbursed and then each specific payment going back will have reversals to the point you met the payment count. When I looked at the account summary and clicked on the individual loans it appeared the end date was 11/2025. But the Department of Education just confirmed the end date for my loans was June 2024. Mine just came up today on the government site. Hopefully this is good news for you as well!