September 14, 2021

Is Student Loan Forgiveness Taxable?

Forgiveness

Student debt has increased a great deal over the decades. This has led more and more people to seek out ways to help pay off their student loans. However, along with debt cancellation, you may ask the question: “Is student loan forgiveness taxable?”

If you have been following the news over the past few months, you may have heard something about student loan forgiveness. It is a complex topic with a lot of considerations. In this article, we'll break down exactly how this will impact your taxes and what you can do to make sure your tax situation stays as simple as possible.

What Is a Student Loan Forgiveness Tax?

Student loan forgiveness is a viable option for those struggling with the burden of their student debt. Prior to having Biden’s American Rescue Plan in place, only a few exceptions could be applied when it came to taxes placed on student loan forgiveness.

The only time your student debt cancellation income can be excluded from taxes is through public service loan forgiveness. This is a type of arrangement wherein your cancellation of debt (COD) income will not be taxed if you work for a certain amount of time in your particular profession. You must work full-time in the government sector, a nonprofit organization, or a public service corporation. The condition is that these agencies must be areas of high unemployment or underemployment.

Public service loan forgiveness is thus not taxable. With this type of loan forgiveness, you will be able to have your remaining debt forgiven after 10 years of payments. If there’s a remaining balance after 25 years, then that will be considered taxable — but what happens when the student loan forgiveness tax provision gets approved?

What Student Loan Forgiveness Means for Your Taxes

There is no official news about student loan forgiveness as part of Biden’s American Rescue Plan unveiled in January. It’s good to know the implications if it will soon become part of the government’s measures to improve people’s circumstances due to the pandemic. One of these implications concerns how student loan forgiveness means for taxes.

An important provision included in the American Rescue Plan, signed into law last March, is for student loan forgiveness to be tax exempt. Prior to this, any forgiven debt would have meant an additional taxable income. If this plan soon includes non-taxation of student debt, then you won’t have to pay taxes for it.

To illustrate, if you have $10,000 of your student loan forgiven in 2021, that amount will be part of your reported income — your COD income on top of your taxable income. This is the amount that will be taxed for the year. If Biden’s tax update on student loan forgiveness gets approved, then any forgiven student debt will be tax free.

Something To Look Forward To

If the tax provision on student loan forgiveness in the American Rescue Plan will be in place, we definitely have a lot to look forward to. If you are struggling with student debt and would like to apply for federal forgiveness programs, get started with Chipper here to find the forgiveness plan you deserve

Use Chipper for Lower Payments

Chipper can help you find a student loan repayment plan that actually fits into your budget. You simply fill out your information and link your student loan account for us to generate your options in seconds. We help the average student loan borrower save over $300 a month off their student loan monthly payment. Lowering your monthly payment plan can game changing for your personal finance and can be done in minutes! Sign up for Chipper today to get on track with your student loans.

Use Chipper for The Best Path to Forgiveness

Finding your path to student loan forgiveness is easier than ever before. Chipper helps members find better Income-Driven Repayment (IDR) plans every day. Once enrolled in an eligible repayment plan, we can help you explore your forgiveness options and understand your path towards forgiveness. Sign up with Chipper today and get on track with your student loans.

Use Chipper for Round-Ups

Paying off your student loans doesn’t have to be a long and painful journey. Round-Ups are a way to directly pay off your loans with your everyday spending! By tracking your linked spending account(s), we will calculate the rounded up amount from each transaction in a week (IE spending $4.28 would add $0.72 to the weekly amount). We then initiate a payment towards your student loan for the weekly amount. Get chipping away on your student loans with Chipper today.

Use Chipper for Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) program was created to provide relief to borrowers aiding the public sector. Unfortunately, 30% of applicants are denied due to incorrect paperwork. We can help! Chipper was created to solve this issue by assisting borrowers in understanding their options as well as allowing forgiveness eligible users enroll into the best forgiveness program available. Sign up for Chipper today to see your student loan forgiveness options and get the forgiveness you deserve.

Use Chipper for Teacher Loan Forgiveness (TLF)

The Teacher Loan Forgiveness (TLF) program was created to enable teachers working in Title 1 schools to receive student loan forgiveness of up to $17,500 (depending on their teaching subject). Chipper has helped teachers from all over the country qualify for TLF program and can help you get the forgiveness you deserve today. Find out if you qualify for forgiveness in minutes with our employer search tool.

See How Much You Can Save with Round-Ups

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