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Student Loan Forgiveness

November 7, 2017 by Aaron Bloom
Copeland Buhl

You may have heard about student loan forgiveness in the past and written it off as not being an option for you to escape your student debt. You may have assumed you would need to cure malaria in the jungles of Tanzania or teach school children in a yurt in northern Alaska to have your loans forgiven. Take heart! While those are certainly options, there are numerous other ways to have your loans forgiven. This article will introduce you to some of the more popular student loan forgiveness programs available to those holding a piece of the estimated $1.2 trillion of student debt pie. The “Additional Resources” listed at the conclusion of this article provide links to additional information on the respective programs.

Loan Forgiveness Programs:

  • Public Service Loan Forgiveness (PSLF) – Federal Direct Loan forgiveness program created by Congress to encourage indebted professionals to pursue a career working full-time in public service. The program has very strict requirements that entail working in specific fields for at least 10 years, enrolling in qualified income-driven repayment plans, and the program only forgives Federal Direct Loans.
  • Income-Driven Repayment Plan – If you are enrolled in certain Federal loan income based repayment plans you may qualify for Federal loan forgiveness after 20 to 25 years of payments regardless of what employer you work for. This program is intended to help those with high student loan debt and low incomes who may have little prospect of paying off their debt. On the flip side, due to the long repayment schedule it is entirely possible you will pay off the debt before forgiveness is granted.
  • Teacher Loan Forgiveness – Federal program offered through the Department of Education that provides limited debt relief (maximum of $17,500) to certified teachers who work in certain secondary and elementary schools and educational service agencies that serve low-income families. Program requires teaching for five complete and consecutive academic years.
  • Minnesota State Loan Repayment Programs – Qualified healthcare professionals and teachers may qualify for incremental annual student loan repayment if they work in underserved communities. There is a very competitive application process for the limited quantity of awards. In 2016, Minnesota was set to award a maximum of ten awards for medical professionals practicing in rural and urban health professional shortage areas.

Tax Consequences:

The forgiveness of student loan debt could potentially be taxable.  According to IRS Publication 970, “to qualify for tax-free treatment, for the cancellation of your loan, your loan must have been made by a qualified lender to assist you in attending an eligible educational institution and contain a provision that all or part of the debt will be canceled if you work:

  • For a certain period of time,
  • In certain professions, and
  • For any of a broad class of employers.”

The loan forgiveness programs listed below are not federally taxable (varies by state):

  • Public Service Loan Forgiveness
  • Teacher Loan Forgiveness
  • Minnesota State Loan Repayment Programs (not taxable by Minnesota)

The following forms of loan forgiveness are taxable:

  • Income-Driven repayment plans (20-25 year repayment)
  • Employer provided loan forgiveness as a benefit

It is important to research what programs are applicable to you and ensure that you meet all requirements both initially and as you continue in the loan forgiveness program of your choice. Programs such as the PSLF can be very unforgiving if all of the requirements are not met. The list of programs in this article is not exhaustive and specific industries may have their own loan forgiveness programs.

Please feel free to contact me at 952-476-7152 or aaron_bloom@copelandbuhl.com if you have any questions.

Additional Resources:

Public Service Loan Forgiveness

Income-Driven Loan Repayment Information

Teacher Loan Forgiveness and Cancellation

Minnesota State Loan Repayment Program

IRS Publication 970 – Tax Benefits for Education

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