Student loans forgiven after 20 or 25 years, but the amount forgiven is taxed?

I went to law school for three years ten years ago. Student loan was $210k at graduation. Navient only takes 10% of my disposable income so instead of taking $2k a month, they only took $200, which doesn’t even cover interest. So I’ve paid this for the last 10 years just fine. My concern is when the loan will be forgiven in another 10 or 15 years. My student loan is now at $350k because of 10 years of interest. Another 15 years of interest will make it balloon to $500k. So if I’m forgiven the $500k in the end, I understand the IRS taxes loan forgiveness as income and sometimes the IRS sends a bill for 30% of the forgiven loan amount. I do not want that bill. I’ve heard some students get the IRS bill and others don’t. Is there any advice from people who have faced this situation? Thanks. We should also be aware of this issue when politicians talk about “forgiving” loans. Will we still be taxed the amount that is forgiven?

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Can you tell me more about 25 year loan forgiveness please?

This article mentions loan forgiveness …

YES! Unless you’re on the teacher or public policy loan forgiveness programs, the amount your forgiven will be treated as taxable income (state and federal).

This is a very real, very serious issues that’s going to wipe a generation that already can’t save for retirement, let alone emergencies.

I’m in a similar situation: took out 75k (both undergrad and grad) and enrolled in IBR. I make min payments because my take-home is minimal, so by the time my payment plan is over, my debt will have grown to 300k and I’ll owe 90k in taxes. This is so dangerous on so many levels:

  1. This is an under-discussed topic. I didn’t learn about this before I took out the loans, but only through friends in similar situations who have financial advisors. I’m guessing most on payment plans are also unaware and likely not putting aside money for this future bill.
  2. Since I’m not paying down my principal on my payment plan, I have to use any money I would normally direct to the loans to savings (I use CDs) for this est tax bill.
  3. This is money should be going to retirement and emergency savings. But since my salary has to be capped (bc the more I earn, the more I owe in monthly payments), the amt I can put aside isn’t enough to cover all three. Again, folks who may not know about this bill will likely have to use what they’ve invested for retirement to pay this off (I know this is already true for one of my friends).

There needs to be more education on this issue and there needs to be tax policy reform. People need to organize and raise hell about it. We can learn from the folks who organized for mortgage bailouts.

Hi June, Yes, that’s not good news about the amount forgiven being shifted to income. I am not sure how that would play out, but for many people, it would jump them into a much higher tax bracket. I hope that things are cleaned up before that happens. Peace.

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Thanks for this post. I worry about this all the time, because I expect to have a huge balance forgiven after 25 years. It’s pretty scary and there is no current solution I’m aware of. I agree this is an under-discussed aspect of the loan crisis. As people who have used IBR and similar programs start to approach the dates of forgiveness, I’m hoping this problem will be talked about and solved.


Totally right about jumping to higher tax brackets!

I know I’m preaching to the choir on here, but I’d like for people to start organizing around this specific part of debt forgiveness. When high-profile folks talk about wiping student debt, I want to make sure this is part of the plan and any future policy. It keeps me up at night (!) and I still have 15 years before my bill arrives. (lol sob) :skull: