Stanley Tate’s student loan letter · sent to my email list on October 8, 2026. Student loan rules change often, so check the date before you act on anything here.

This one’s for you if you’re on IBR, PAYE, ICR or RAP and counting down to forgiveness after 20, 25 or 30 years.

If you’re going for PSLF, it doesn’t touch you. Same if you’re getting a disability or death discharge. You can skip this one.

Forgiveness under an income-driven plan counts as income on your federal taxes again, starting with forgiveness earned in 2026. A report out yesterday puts the typical extra bill at $6,000 to $12,000.

Congress can still fix it, and people are pushing. It hasn’t happened yet.

If your forgiveness is years away, you don’t need to do anything this week except know this. If it’s coming in the next year or two, start planning now, not next April.

And if you hit your last qualifying payment in 2025, you’re probably fine. More on that below.

What happened

The tax break that covered student loan forgiveness ran out on December 31, 2025. The law Congress passed last summer kept it permanently for death and disability discharges, and only those.

So forgiveness you earn under an income-driven plan in 2026 or later is ordinary income in the year it’s forgiven. PSLF was never part of this and stays tax-free. Teacher Loan Forgiveness stays tax-free too.

What the report found

Protect Borrowers, the nonprofit that used to be called the Student Borrower Protection Center, ran the numbers in Fleeced at the Finish Line (PDF).

They estimate 1.9 to 3.2 million people will reach income-driven forgiveness between 2026 and 2036. The average amount forgiven is $49,697. Most people who earn it made under $50,000 a year in 2022.

Here’s what that does to a tax return. A married couple with two kids making $60,000 normally gets $3,102 back. Count the forgiveness as income and they owe $4,104 instead, a $7,206 swing.

A family of four at $40,000 goes from $8,854 back to owing $1,704. A single person with no kids at $40,000 owes $10,525 instead of $2,320.

What bothers me is who this lands on. The lower your income, the worse it gets, because the forgiveness knocks you out of the Earned Income Tax Credit and the refundable part of the child credit. The people who did exactly what the program asked, on incomes low enough that the payment was small, get the biggest bill.

Those numbers are federal income tax only. They don’t count state tax, and they assume you can’t use the insolvency rule I explain below.

The South gets hit hardest: Louisiana, Mississippi, Arkansas, West Virginia, Oklahoma and New Mexico top the list for married parents. Missouri, where my office is, is tenth. By headcount it’s Texas (up to about 275,000 people), then California, Florida, New York and Ohio.

Who’s trying to fix it

Protect Borrowers has one ask. Congress should permanently exempt forgiveness under the income-driven plans and RAP in the next budget reconciliation bill, and states should stop taxing it too. In their post yesterday they say Congress still has time before April 2027, when people file their 2026 returns.

Last November, nine senators led by Elizabeth Warren, including Bernie Sanders, wrote Treasury and the IRS (PDF). They asked the IRS to use the authority it already has to treat this forgiveness as non-taxable. They pointed out that the IRS did something similar in 2020 for closed-school and borrower defense discharges. I couldn’t find any public answer from Treasury.

The fix has also been written down. Section 41005 of H.R. 6900, the American Affordability Act, would make student loan forgiveness tax-free for anything forgiven after 2025. It’s one piece of a very large tax bill from House Democrats, and it’s been sitting in committee since December. I wouldn’t plan around it.

None of this has passed. I’d plan as if it won’t, and be happy if I’m wrong.

What I’d do now

Find your date. The date you made your last qualifying payment (the 240th or the 300th) decides which year you’re in, not the date your servicer finally processes it. That comes from the settlement in the AFT lawsuit. If you hit it in 2025 and the forgiveness email shows up in 2026, you’re still inside the tax-free window. Screenshot your payment count and keep it.

If your date is 2026 or later, look at your balance. That number is roughly what gets added to your income that year. If you can set something aside, start now.

Know the insolvency rule. If you owe more than everything you own is worth right before the forgiveness, the forgiven amount isn’t taxed, up to the size of that gap. It’s claimed on IRS Form 982. It’s real, and if the gap is big enough it can wipe out the tax entirely, but it takes work. You have to value everything you own, and you’ll probably want a tax preparer who has done one before.

Think about your plan with the balance in mind. If you’re comparing plans, the balance you’ll be forgiven is part of the cost now. The plan that keeps your balance from growing also keeps the tax bill down, and RAP’s interest waiver and $50 principal match do that, but only when payments are on time. RAP also takes 30 years and isn’t cheaper at every income. Don’t switch plans because of this email. Run both.

Check your state separately. Everything above is federal. Your state may tax forgiveness on its own, even if Congress fixes the federal side.

This isn’t advice about your own return. Talk to whoever does your taxes before the year your forgiveness lands, not after.

I wrote a longer piece on IBR forgiveness and taxes if you want the details on the effective date and state rules.

— Stanley

P.S. This weekend is a pretty long one for me, but a fun road trip weekend, actually.

Friday I’m going to an LFD cigars event. We’ll get hand-rolled cigars and conversation with Tony Gomez of La Flor Dominicana.

Saturday morning a friend and I are driving up to New York City and then right back down. We’re both picking up watches that we plan to hand down to our sons, as we get older and as they do.

I’ve been thinking a lot about what gets handed down. When I was growing up, it was the china in the buffet cabinet, the KitchenAid mixer, the recipes.

We live in a more and more disposable society, and I realized very few things are going to get handed down anymore. I didn’t like the way that felt.

I think about the work I do, and we get to have a real impact, but it isn’t something I can hand down. Sure, I could hand down a law firm if my son wanted to come work there.

But I don’t want to pick his career for him. And almost everything I do lives on a screen. It’s rare that I touch anything physical.

So I had this whole conversation with myself about what physical things we can hand down that will outlive us all, so the memories stay. Maybe that’s because I’m 46 and thinking more and more about legacy.

Legacy can be a bit of a myth, and it’s easy to focus on it too much. I think what I’m saying is I want the people around me to know that I thought about them, I considered them, and I keep thinking about them well after I’m gone.

On Sunday, after I get back from New York, I’m driving down to Hampton Roads, Virginia, for my niece’s daughter’s first birthday. She and her wife went through a long battle to be able to have a kid.

Seeing them with this wonderful, beautiful daughter, and what that’s meant for them and their family, is a blessing. I can’t wait to celebrate.

It’s also the first time Giancarlo gets to meet his cousin. They live in Chicago, so we haven’t been able to catch up with them.

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Stanley Tate’s student loan letter · sent to my email list on October 6, 2026. Student loan rules change often, so check the date before you act on anything here.

This one’s for you if something is wrong on your federal loans and nobody will fix it. You’ve called the servicer, filed the ombudsman complaint, maybe called your congressman’s office, and you’re still stuck.

If your loans are private, or you just don’t like your payment, this one won’t help much. Skip it.

There’s a law that lets you ask a federal judge to make the Department of Education do its job. I’d never used it before. I just filed one of these for a client.

Most of you will never need it. Most problems do get fixed by the servicer or the ombudsman, slowly and annoyingly. This is for the ones that don’t.

What happened

I’ll call my client Ruth. That isn’t her name.

Ruth spent her whole career in public schools. She’s going for Public Service Loan Forgiveness, and the Department says she’s a few payments short of 120.

We think the number is wrong. Years ago she was paying every month, and her bank statements match the servicer’s own payment history. The Department has those years coded as forbearance anyway.

She only needs a few of those months to count.

She disputed it years ago, while she was still working. The Department wrote back that it would review the old records. As far as we can tell, nobody ever did.

She tried everything before she hired us. Then I tried everything. Ombudsman complaints, letters to MOHELA’s advocate office, her members of Congress, a request for her records under federal privacy law. We got pieces back. We never got a decision.

So I sued the Department in federal court. The filing fee was $405. The government gets 60 days to answer once it’s served, so now we wait.

What kind of lawsuit this is

It’s called an APA claim, for the Administrative Procedure Act. That’s the law that lets you take a federal agency to court when it won’t do something it’s required to do, or when it makes a decision that ignores its own rules.

You sue the Department, not the servicer. You’re not asking for money. You’re asking a judge to order the Department to act, like fixing a count or deciding an application it’s been sitting on.

I want to be honest about why I filed it. I don’t know if we’ll win, and winning isn’t really what I’m after.

What I want is the information. Once there’s a lawsuit, a government lawyer has to pull her file and look at it, and somebody has to explain her count in writing. If that gets her count fixed without a judge ever ruling, I’ll take it.

I didn’t know how to do this until recently, so I asked for help. I reached out to the National Consumer Law Center to get their read, and they pointed me to Adam Pulver at Public Citizen, who sues federal agencies on behalf of consumers. I sent him my draft, got on the phone with him, and rewrote it more times than I’d like to admit.

Who this might fit

It fits when you’ve already earned something and the Department won’t give it to you. Your count is wrong and you can prove it, or your application has sat for a year with no answer, and the complaints went nowhere.

It doesn’t fit when the problem is a rule you don’t like. If Congress changed the law, there’s nothing for a judge to order the Department to do.

It also doesn’t fit if you’re still years from forgiveness. In a big PSLF case a few years ago, the court threw out the borrowers who were one to seven years from 120, because the harm hadn’t happened to them yet.

And I wouldn’t try it on your own. People have filed these themselves and been thrown out for picking the wrong court or the wrong kind of claim.

What I’d do now

If you’re stuck, start building your file now, even if you never sue anybody. Keep every letter. Write down every case number the ombudsman gives you. Download your payment history from studentaid.gov.

Ruth’s case only works because she kept bank statements from more than 15 years ago. Most people don’t have those. If you do, don’t throw them out.

We have a longer guide on what to do when your servicer won’t fix the problem, starting with the dispute letter and going up from there.

If you want to see what one of these looks like, here’s a sample complaint I built from Ruth’s, with a made-up borrower and made-up facts (PDF). It’s not something to file as is. If you end up working with a lawyer on something like this, it might save them some time.

I don’t know how hers ends. What she wants is to stop thinking about these loans after a whole career in public schools, and I’m going to keep pushing until she can.

— Stanley

P.S. Mostly I’ve been feeling thankful lately. I really like doing this job.

Some of you have noticed the changes. We started sending things through a secure portal instead of email attachments. The emails look different. We built calculators. And we recently switched the articles to a dark background, because some of them are long and the extra contrast makes them easier to read.

We also keep the articles up to date, which is more work than it sounds, because the rules keep moving. I want ours to be the best place on the internet to read about student loans.

We’re doing all of that with one attorney and six assistants. Will Guidara, who ran Eleven Madison Park, has a name for what we’re going for. He calls it unreasonable hospitality. I can’t explain how dope it feels to be working toward that every day.

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