Sunday, December 16, 2012
New York Times:
If you’re enrolled in the income-based repayment program, where any
remaining federal student loan debt gets forgiven after a certain number
of years, should you have to pay income taxes on the loan balance that
the government dismisses?
The tax rules say yes, though there are
exceptions for teachers and people who work in public services jobs. The
truly destitute can get a pass on the tax bill, too, as do people who
manage (against all odds) to get rid of their student loan debts in bankruptcy court.
else, however, must pay the taxes and pay quickly, lest they get hit
with penalties and interest. Changing the rules would deprive the
government of revenue, and legislators might try to take it from some
other federal education program. Keeping this tax rule as is, however,
means that people who are supposed to be getting a break end up with a
single tax bill that could equal years of continued loan payments.
(Hat Tip: Bob Kamman, Francine Lipman, Ann Murphy, Mike Talbert.)
Update: ABA Journal, ‘Tax Time Bomb’ Awaits Student Loan Debtors in Forgiveness Programs