There are two main ways to receive federal student loan forgiveness: 1) Public Service Loan Forgiveness (PSLF) after 10 years of qualifying payments; or 2) Reaching the maximum repayment period under an income-driven repayment plan (IDR), like Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), or the new Repayment Assistance Plan (RAP).
Each income-driven plan has a maximum amount of time that you're allowed to make payments. When you reach the maximum number of payments for an IDR plan, any remaining unpaid interest or principal amount is forgiven. Forgiven or “canceled debt” can be treated as taxable by the IRS (https://www.irs.gov/taxtopics/tc431.html). Your marginal income tax rate in the tax year the debt is forgiven determines how much tax you'll pay on your forgiven balance.
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IDR Aspects
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IBR 2009
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PAYE
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IBR 2014
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RAP
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Maximum repayment period (in years)
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25
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20
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20
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30
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Maximum repayment period (in months)
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300
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240
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240
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360
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Payments can be PSLF eligible
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Yes
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Forgiveness taxable
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Yes
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Please Note: As part of the One Big Beautiful Bill signed into law July 1, 2024, both ICR and PAYE plans are scheduled to be eliminated July 1, 2028. As part of the finalized repayment rules for RAP, previous IDR forgiveness progress logged in IBR, PAYE, or other income-driven plans will count towards the time needed to reach forgiveness in RAP. However, payments made using RAP will count only towards the 30 years of payments needed to reach forgiveness in RAP. Unfortunately, RAP payments will not count towards the forgiveness in other IDR plans.
Any payment made using any remaining IDR plan can be PSLF eligible as long as the payments are made to federal Direct Loan types while meeting the PSLF employment requirements during each payment.
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How do you know when to expect forgiveness?
It has been difficult to get an accurate count of your forgiveness progress. PSLF progress is tracked separately from IDR progress. For anyone with PSLF progress, check your PSLF progress widget on studentaid.gov. Submit PSLF employment certification at least annually to continue tracking your PSLF progress. While there used to be a separate IDR progress tracking widget available on studentaid.gov, that has been temporarily removed. In the meantime, there is a clunky, geeky way to review your forgiveness count information:
Step 1) Log in to studentaid.gov
Step 2) Open a new browser tab and enter https://studentaid.gov/app/api/nslds/payment-counter/summary
The data is available only through this "back door" API link at this time. It's going to look really ugly as it is not formatted well for viewing. Look for the "qualifying payment count" and "forgiveness remaining payments" data for each of your remaining loans. This represents the number of months the Department of Education has on file for your loans and the number of payments you have to reach forgiveness, respectively. Convert your qualifying payment count to years (rounded to the nearest year) and enter this as your "Years in Repayment" in the VIN Foundation Student Loan Repayment Simulator.
How do you estimate your potential forgiveness tax?
Estimating your future tax on forgiveness is both art and science. We can make some reasonable assumptions based on historical and current federal and state income tax rates.
The top tax bracket for 2026 is 37% and begins at incomes over $640,600 for single filers and $768,700 for married joint filers. Keep in mind that tax brackets are also adjusted each year for inflation. For example, in 1995 (30 years ago), the top federal tax bracket started at incomes over $256,500 per year for single filers and was taxed at a rate of 39.6% (higher than the top marginal tax rate today).
For illustration, let’s say you have a total taxable income plus a forgiven student loan balance of $500,000 in 2026. We'll assume you are married and plan to file your taxes jointly.
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Tax bracket for Married Joint Filers
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Calculation
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Tax amount
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First $24,800 is taxed at 10%
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0.10*$24,800
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$2,480
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Amounts between $24,801 and $100,800 are taxed at 12%
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0.12*($100,800-$24,801)
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$9,120
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Amounts between $100,801 and $211,400 are taxed at 22%
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0.22*($211,400-$100,801)
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$24,332
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Amounts between $211,401 and $403,550 are taxed at 24%
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0.24*($403,550-211,401)
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$46,116
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Amounts between $403,551 and $512,450 are taxed at 32%
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0.32*($500,000-403,551)
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$30,864
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Amounts between $512,451 and $768,700 are taxed at 35%
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0.35*($768,700-$512,451)
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$0
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Amounts over $768,700 are taxed at 37.0%
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0.37*($0)
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$0
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Total Tax Amount
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Sum of tax amounts
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$112,912
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Effective Tax Rate
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$112,912/$500,000
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22.6%
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Marginal Tax Rate
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Highest tax bracket
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32.0%
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Under this example scenario, ideally, you would have enough saved to cover the tax liability of $112,912. Let's say you had 20 years to plan for that tax. To reach that target, you could have saved $113,000/240 months = $471 per month to cover the tax liability.
Alternatively, you could have saved for the tax liability using investments (money market, certificate of deposit, equities, bonds, annuities, life insurance, etc, or a combination thereof) to boost your forgiveness savings average annual return. For example, if you were to receive at least a 4% return on your forgiveness savings, you could reduce your $471/month savings plan to $307/month in order to have $113,000 on hand to cover your forgiveness tax liability from the example above.
Forgiveness Planning and Effect on Total Repayment Costs
Estimating your potential forgiveness amounts and planning for a possible tax liability can reduce your overall loan repayment costs substantially.
Let's say you finish veterinary school with $225,000 in federal student loans. If we run a simulation of your repayment using a starting income of $130,000/year increasing by 3% per year and assume a family size of 1 for the duration of repayment using IBR 2014, your total projected repayment costs might be $319,961 assuming a 30% tax on amounts forgiven and a forgiveness savings plan return of 4% per year.
Effective Annual Interest Rate
If you end up paying $319,961 in total under IBR 2014 including the forgiven amounts, that means you have paid $119,961 in interest over 20 years (amounts above what you borrowed, $319,961 - $200,000 = $119,961). The proportion of your total interest above what you borrowed = $119,961/$200,000 = 0.599. If we annualize that over the 20 years, your “effective annual interest rate” equals 0.599/20 * 100 = 2.99% per year.
The effective annual interest rate calculation will help you compare an IDR strategy vs. a more aggressive payoff or a private consolidation loan. The effective Interest Rate also helps you understand how much it costs you annually to pay your student loans back when we account for a forgiveness tax at the end. Oftentimes, more aggressive payoff plans or private consolidation loan offers will look enticing because of the seemingly lower variable or fixed interest rate that you may qualify for based on your credit history. However, if you know how the IDR plans and forgiveness affect your repayment costs, you can better assess whether or not that aggressive payoff or private loan refinance offer will save you money vs. paying the minimum monthly income-driven payment and planning for the tax on forgiveness.