If you’re considering student loan forgiveness to repay your student loan debt you may not have thought about whether that forgiveness comes with a big tax bill. Today’s post gives you the details on which student loan forgiveness options aren’t taxed as income and which option is. Estimated read time ~ 3 min. Estimated watch time at 1.5x speed ~ 2 min.

 

 

Public Service Loan Forgiveness (PSLF)

• Not taxed as income. The amount of student loan debt forgiven under PSLF doesn’t have a limit and is not taxed as income.

 

Teacher Loan Forgiveness

• Not taxed as income. The amount of student loan debt forgiven under Teacher Loan Forgiveness is limited to either $5,000 or $17,500 depending on the subjects taught and isn’t taxed as income.

 

Income-driven Loan Forgiveness

• Taxed as income. The amount of student loan debt forgiven under Income-driven Loan Forgiveness is taxed as income.
• That means, depending on the amount of debt you have forgiven and your income, you could have a tax bill of thousands or tens of thousands of dollars if you get student loans forgiven under this plan.
• Here’s a handy Forbes article with the 2018 tax brackets.

 

How to Plan

• If you’re considering PSLF or Teacher Loan Forgiveness, there’s nothing to plan for.
• If you’re considering Income-driven Loan Forgiveness you’ll want to talk to a CPA or tax professional to help you plan for the potentially large tax bill.
• Before you go talk to them it will be helpful to know about how much student loan debt you expect to have forgiven. You can find that out by using the Student Loan Repayment Estimator on the federal aid website.

 

If you’re planning on getting Income-driven Loan Forgiveness what is your strategy for managing the tax bill? Let me know in the comments below or on the Repayable Facebook Page.