Will Taxpayers Pay for Student Loan Forgiveness? The Costs

Commentators often frame student loan forgiveness as either a free gift to borrowers or a bill handed to everyone else. Neither description is quite right. The federal government is the lender on most student debt, so any forgiveness reduces what the Treasury expects to get back. This guide explains how analysts measure that cost, what the main estimates say as of October 2026, and why different analysts reach different conclusions.

Why forgiveness is a federal budget cost

Most student loans in the United States are Direct Loans made by the Department of Education with money the Treasury borrows. When a borrower repays, the government is paid back with interest. When the government forgives a balance, the unpaid amount becomes a loss compared with what it expected.

Budget scorekeepers such as the Congressional Budget Office (CBO) record that expected loss as a cost in the year the loan is made or the policy is changed. Because the Treasury finances the shortfall by borrowing, the burden falls on federal taxpayers in general, spread across years, rather than in a separate charge to any one household. Economists disagree about who ultimately benefits or pays, which is why this topic stays political. This article sticks to what the estimates show.

What the major estimates say

Item	Estimate	Source
2022 cancellation plan (up to $20,000 per borrower)	About $400 billion over 30 years, with high uncertainty	CBO, reported by CBS News
Principal covered by that plan	$430 billion	As described in coverage of Biden v. Nebraska
Forgiveness under income-driven plans, loans made 2020 to 2029	$40.3 billion (undergraduate) and $167.1 billion (graduate)	CBO, 2020 report on IDR
Savings from the 2025 reconciliation law	About $315 billion over 10 years	CBO figure, reported by CRFB

These numbers measure different things, so you cannot simply add them together. The first was a one-time policy that never took effect. The last two describe ongoing programs and later changes.

The 2022 plan that never happened

The administration’s 2022 plan would have canceled up to $10,000 per borrower, or up to $20,000 for Pell Grant recipients, for borrowers under income limits. CBO’s estimate of about $400 billion over 30 years was the figure most often quoted. The Supreme Court struck the plan down on June 30, 2023, so the government spent no taxpayer money on it. For the legal story, see did Congress approve student loan forgiveness.

Will taxpayers pay for student loan forgiveness? Where the ongoing cost comes from

The larger continuing cost is not a headline cancellation. It comes from programs that forgive balances after set conditions are met:

• Income-driven repayment (IDR). These plans tie monthly payments to income and forgive remaining balances after a long repayment period. CBO has found IDR loans carry a much higher subsidy than fixed-payment loans.
• Public Service Loan Forgiveness (PSLF). The government forgives remaining Direct Loan balances after 120 qualifying payments. The Committee for a Responsible Federal Budget argues PSLF is a place where further savings are available, noting the 2025 law did not change it. That is an advocacy view, and other groups argue the program rewards public service as intended.
• Targeted discharges for disability, closed schools and borrower defense, which are smaller in total.

Our guide on which jobs qualify explains who actually receives PSLF.

What changed in 2025 and 2026

The One Big Beautiful Bill Act, signed July 4, 2025, reshaped the cost picture. According to CRFB’s analysis of CBO’s January 2026 report, the government now expects to lose about 4 cents per dollar lent on loans made in 2026, down from 18 cents in 2025. The change comes mainly from the new Repayment Assistance Plan (RAP) and new graduate borrowing limits. CBO’s projection of about $315 billion in savings over 10 years came out when the law passed.

There are caveats. The 4-cent figure covers new loans made in 2026, not the large stock of older loans. Under fair-value accounting, which adds market risk, CRFB reports the cost is closer to 18 cents per dollar. The older SAVE plan wound down in 2026 after litigation, so its projected costs matter less than they once did.

Do taxpayers get anything back?

Forgiven balances may produce some tax revenue when the discharge counts as taxable income. The federal exclusion for most student loan discharges ended after December 31, 2025, per the IRS, so some 2026 forgiveness is taxable. CBO’s 2020 IDR analysis noted that its cost estimates left out forgone tax revenue and taxes on forgiven balances, so this offset is usually not captured in the headline cost. Our guides on taxability and paying the tax explain how it works for borrowers.

Will taxpayers pay for student loan forgiveness? What this means for you

1. Separate politics from eligibility. Arguments over cost do not change whether you qualify under existing programs; check your options at studentaid.gov.
2. Expect rules to keep shifting. Cost concerns are a major reason Congress and the Department revisit repayment plans, so confirm details before you rely on a plan.
3. Plan for taxes if you expect forgiveness in 2026 or later, and ask a tax professional about exclusions.
4. Know the loan type. Federal programs do not cover private loans; see private student loan forgiveness.

Scam warning: Ignore anyone who says you must pay a fee to claim forgiveness “before the funds run out.” Programs are free to apply for and funding is not a first-come offer.

How to read cost headlines with care

Cost figures for student loans are easy to misuse. A few habits help you judge any number you see:

• Check the time horizon. A 10-year figure and a 30-year figure are not comparable. The 2022 plan estimate covered 30 years.
• Check the accounting method. Federal credit scoring and fair-value scoring give very different answers for the same loans, as the 4-cent and 18-cent figures above show.
• Separate new loans from old ones. Estimates for loans made in 2026 say little about balances issued years ago.
• Look for the uncertainty note. CBO itself called its 2022 estimate highly uncertain, because costs depend on how many borrowers enroll, their future incomes and how programs are administered.
• Notice who is making the argument. Think tanks on every side publish analysis. Compare their numbers back to the original CBO or Department of Education report where possible.

None of this settles whether forgiveness is good policy. That is a values question about fairness, education costs and public service. What the data can tell you is the size and timing of the budget effect, and those answers have changed repeatedly since 2022. For how we handle changing rules on this site, see our guide on whether forgiveness can be reversed.

Worked example: how taxpayers pay for student loan forgiveness in budget terms

The mechanics are easier to see with a simplified, invented example. The numbers below are round figures chosen for illustration, not estimates from any agency.

Suppose the government lends a student $40,000 and, under the accounting rules Congress uses for credit programs, expects to collect $44,000 back over twenty years once interest is counted and a discount rate is applied. On the day the loan is made, the books show the program as roughly break-even or a small gain. Nothing has been paid by taxpayers yet; the Treasury borrowed the $40,000 and expects repayment.

Now suppose the borrower enrolls in an income-driven plan, pays $12,000 over twenty years and has the remaining balance forgiven. The government collects $12,000 instead of $44,000. The $32,000 shortfall is the cost of the forgiveness. It appears in the budget as a re-estimate of the loan’s value and, because the Treasury financed the original loan with debt, as additional borrowing that future taxpayers service through interest.

Multiply that pattern across millions of borrowers and you arrive at the multi-billion-dollar figures in agency reports. No household receives an invoice, but the cost is real: it is money the government expected and will not receive. That is the sense in which taxpayers pay for student loan forgiveness, and it is why cost estimates focus on expected repayments rather than headline balances.

Common misconceptions about whether taxpayers pay for student loan forgiveness

• Taxpayers write a check for the full balance. The cost is the difference between what the government expected to collect and what it actually collects. For a borrower who would never have repaid in full, the cost is smaller than the balance.
• The cost falls on this year’s taxpayers. Forgiveness that a loan program has priced in spreads across the life of the loans and the debt that financed them. The timing of the cost and the timing of the discharge are different things.
• Forgiveness is free because the money was already spent. The government lent the money. It did not spend it. The expectation of repayment was an asset on the government’s books, and forgiveness reduces that asset.
• Borrowers pay nothing. Borrowers on income-driven plans pay for years before forgiveness, and since 2026 many owe federal income tax on the forgiven amount, which partly offsets the budget cost. Our guide on whether student loan forgiveness counts as income explains that tax.
• Every estimate measures the same thing. Some figures count only new policies, others include existing programs such as PSLF, and some use different discount rates. Comparing them without checking the scope leads to double counting.
• Private loan forgiveness also costs taxpayers. It does not. Private lenders bear their own losses; see private student loan forgiveness options.

Checklist: questions to ask about any cost estimate

1. Who produced it? The Congressional Budget Office is the official scorekeeper; the CBO website publishes its methods. Advocacy groups and think tanks may use different assumptions.
2. What period does it cover? A ten-year budget window is standard, but some estimates stretch over the full life of the loans.
3. Is it a cost or a transfer? Budget cost measures lost repayments. Figures described as total debt cancelled or relief delivered measure something else.
4. Does it include existing programs? PSLF, income-driven forgiveness and disability discharges were already law before any recent policy; an estimate that counts them as new cost overstates the change.
5. What happened to the policy? Courts blocked the 2022 plan, so its headline estimate never became an actual cost. Our guide on whether Congress approved student loan forgiveness tracks which proposals became law.
6. Are offsets counted? Taxes on forgiven amounts and higher payments under new repayment plans reduce the net cost. Good estimates state whether offsets count.
7. Has it been updated? Enrolment, interest rates and court rulings move the numbers. Check the date before quoting a figure.

Sources and further reading

• CBS News: CBO estimate of the 2022 cancellation plan
• National Constitution Center: Biden v. Nebraska
• CBO: Income-Driven Repayment Plans for Student Loans
• CRFB: Student loan costs drop after reconciliation reforms
• NASFAA: How OBBBA affects government costs of federal student loans
• IRS Tax Topic 431: Canceled debt

Frequently asked questions

Do taxpayers pay for student loan forgiveness?

In budget terms, yes. Forgiven balances are money the government expected to collect, so the cost adds to federal borrowing that all taxpayers ultimately finance. It is not usually a separate charge to individual households.

How much would the 2022 forgiveness plan have cost?

CBO estimated about $400 billion over 30 years, with the caveat that the estimate was highly uncertain. The Supreme Court struck the plan down on June 30, 2023.

Does PSLF cost taxpayers money?

Yes, forgiven PSLF balances are a federal cost. CRFB argues PSLF is a candidate for reform, while supporters say it rewards public service work.

More questions on whether taxpayers pay for student loan forgiveness

Did the 2025 law reduce the cost of student loans?

According to CRFB’s reading of CBO data, the government now expects to lose about 4 cents per dollar on loans made in 2026, down from 18 cents in 2025.

Is forgiven student debt taxed?

Sometimes. The federal exclusion for most discharges ended after December 31, 2025, though PSLF-type and death or disability discharges have separate exclusions.

Does forgiveness raise my own taxes?

There is no separate tax on households to fund it. Any effect works through federal borrowing and budget decisions, which are difficult to trace to an individual.

Where can I see the official numbers?

CBO and the Department of Education publish budget reports, and CRFB summarizes them. Compare the date and the type of accounting used before comparing figures.

Costs, tax rates and state budgets

Will taxpayers pay for student loan forgiveness through higher tax rates?

Not directly. Forgiveness adds to federal borrowing rather than triggering a specific tax increase. Whether future Congresses raise taxes, cut spending or borrow more to cover deficits is a separate political decision.

Does forgiveness cost more than the original loans?

No. The cost cannot exceed the amount the government expected to collect, and for borrowers who were never likely to repay in full it is considerably less than the outstanding balance.

Do state taxpayers pay for federal student loan forgiveness?

State budgets do not fund federal loan programs. The only state-level effect is on income tax revenue, which can rise when forgiven amounts are taxable at the state level, as explained in our guide to which states tax student loan forgiveness.

This article is general information, not legal, tax or financial advice. Rules change, so confirm details with the official sources above or a qualified professional before you act.