Public Service Student Loan Forgiveness Archives

Can Your Student Loan Forgiveness Be Taxed?

Posted on July 9, 2024by Admin

According to recent data from the Federal Student Aid Data Center, 43.6 million people have outstanding federal student loan debt. In February 2024, the Biden Administration canceled $1.2 billion for 153,000 borrowers enrolled in the Saving on a Valuable Education (SAVE) repayment plan. And in March, 78,000 borrowers were granted student loan forgiveness through the public service loan forgiveness (PSLF) program, which included many teachers, nurses, firefighters, social workers, and other public servants, including the military.

For those struggling to afford their monthly payments, forgiveness on their student loans may seem like a dream come true. However, it is not always a clean break, and certain forms of student loan forgiveness are taxable.

Thanks to the American Rescue Plan Act of 2021 any student loan debt forgiveness that passes between December 31, 2020, and January 1, 2026, is considered tax-free. Previously, any forgiveness on student loan debt was treated as taxable income.

From Jan. 1, 2026, onward, how student loan forgiveness and discharge programs are taxed depends on the program.

Public Service Loan Forgiveness (PSLF)

Those who work for nonprofit organizations, government agencies, or public service groups may qualify for PSLF if they work for a qualifying employer full-time for 10 years and make 120 qualifying monthly payments. After reaching those milestones, borrowers can apply for debt forgiveness. Once approved, the government forgives the remainder of the balance. PSLF is one of the few programs that is excluded from federal income taxes; none of the forgiven loan amount is taxable as income.

Income-Driven Repayment (IDR) Discharge

IDR plans are for federal loan borrowers and extend the loan terms and base the borrower’s monthly payments on a percentage of their discretionary income.

The government will discharge the remainder if the borrower still has a balance at the end of their loan term. However, the forgiven loans are taxable as income at the federal and state levels.

Borrower Defense to Repayment Discharge

Borrower Defense to Repayment Discharge is a program that eliminates federal student loans belonging to borrowers who their college misled, or if their schools engaged in misconduct and violated state laws.

The IRS and the U.S. Department of the Treasury have issued notices that clarify that loans discharged through Borrower Defense to Repayment are not taxable as income.

Total and Permanent Disability Discharge (TPDD)

TPDD applies to borrowers who become totally and permanently disabled. The government will discharge the remaining loan balance for eligible federal loan borrowers. How and if these are taxed depends on when the loans were discharged. If you received discharge before January 1, 2018, the discharged loan amount is subject to federal income taxes.

Tax on student loan forgiveness for private student loans.

Private student loans are not eligible for federal loan programs like PSLF or TPDD. However, borrowers with private student loans may qualify for other loan forgiveness or discharge programs. For example, some private lenders will discharge the loans of borrowers who become totally and permanently disabled.

The American Rescue Plan specifies that forgiven private student loans are also exempt from federal income taxes through the end of 2025. However, they may be subject to state income taxes. According to the IRS, student loan amounts forgiven under PSLF are not considered income for tax purposes. You will not be taxed by the federal government, but your state may tax you. Any debt forgiven because of PSLF will not create a federal tax liability for you.

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For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

SOURCES:

Reasons You Can or Can’t Be Taxed on Student Loan Forgiveness (aol.com)

Will I be taxed on student loan forgiveness? (yahoo.com)

MOHELA Accused of Deflecting Calls and Mismanagement of Student Loan Relief Applications

Posted on April 3, 2024by Admin

The student loan company, MOHELA, is in hot water for allegedly profiting from a backlog of Public Service Loan Forgiveness (PSLF) applications.

With nearly a million unprocessed forms, it is alleged that MOHELA incorrectly told some borrowers they didn’t qualify for the program, and inaccurately counted the payments borrowers made to be eligible for full relief.

Public Service Loan Forgiveness allows student loan borrowers who work in public service-oriented jobs; for example, teachers or government employees, to have their loans fully canceled if they have made payments for 10 years.

The American Federation of Teachers and the Student Borrower Protection Center are also accusing MOHELA of engaging in a “call deflection scheme” by strategically avoiding borrowers who needed help.

The Education Department said the Biden administration has made clear it will not let borrowers pay for the actions of student loan companies. In October, the feds issued a $7.2 million penalty to MOHELA for failing to send millions of borrowers their bills on time when payments resumed, which in turn made borrowers delinquent.

In a statement this week, Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Elizabeth Warren, D-Mass., chastised MOHELA over the conduct described in the report.

“Our nation’s public servants, members of the military, and first responders deserve far, far better,” they wrote.

“What has happened here is a pattern and practice of greed,” said Randi Weingarten, the president of the American Federation of Teachers.

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Bankruptcy Law, Student Loans, Timothy Kingcade Posts

99 Percent of Public Service Student Loan Forgiveness Applicants Rejected

Posted on May 7, 2019by Admin

According to recent U.S. Department of Education statistics, more than 99 percent of people who have applied for available public service student loan forgiveness have been rejected. As of December 31, 2018, it was reported that 65,500 total applications for the public service student loan forgiveness program had been submitted. However, of this total, 58,000 applications had been processed with the majority of them resulting in denials. An additional 7,200 applications were marked as pending.

The program’s requirements are complicated, and not well-explained to qualifying borrowers. Approval requires more than simply working in public service. The Public Service Student Loan Forgiveness Program is offered through the federal government and requires the borrower work full-time, meaning more than 30 hours per week, in an eligible federal, state or local public service job. The borrower can also work for a 501(c)(3) nonprofit, so long as the position is a full-time, eligible one. The borrower must make 120 eligible on-time payments to qualify.

Several different reasons were given for these denials. Seventy-three percent of these rejected applications were denied due to the applicant not meeting the “program’s requirements.” These requirements could mean either the borrower did not have student loans that were eligible for forgiveness, did not have qualifying employment, or did not make the 120 consecutive required qualifying student loan payments. Another 25 percent of these student loan forgiveness applications were denied because the applications were incomplete or had missing information on the employment certification form.

The report indicated that only 610 applications for student loan forgiveness had been approved and that 338 borrowers had received a collective amount of $21.1 million in public service student loan forgiveness. Less than 0.5 percent of the applications submitted were successful.

Click here to read more on this story.

Bankruptcy Law, Student Loans, Timothy Kingcade Posts

Public Service Student Loan Forgiveness Program Rejects 99% of Applicants

Posted on September 28, 2018by Admin

A simple promise was made to student loan borrowers by the government: Work in public service for 10 years, make your student loan payments on time for 10 years, and the Dept. of Education will forgive the remaining balance on the loan. Borrowers have complained for years that the program has not worked as advertised, and new data reveals they’re right.

The U.S. Department of Education released the latest statistics for public service loan forgiveness:

As of June 30, 2018, 28,000 student loan borrowers submitted 33,000 applications for public service student loan forgiveness program. Of that total, approximately 29,000 applications have been processed. Of that total, more than 70% of applications have been denied due to student loan borrowers ‘not meeting the program requirements.’ Another 28% of applications for public service loan forgiveness were denied due to missing or incomplete information on the employment certification form.

The Public Service Loan Forgiveness Program is a federal program that forgives federal student loans for borrowers who are employed full-time (more than 30 hours per week) in an eligible federal, state or local public service job or 501(c)(3) non-profit job who make 120 eligible on-time payments.

So, who has been approved?

Approximately 300 applications have been approved, but only 96 borrowers have collectively received $5.52 million in public service loan forgiveness.

Click here to read more on this story.

Bankruptcy Law, Debt Relief, Student Loans

Public Service Student Loan Forgiveness Program- Here’s how you qualify

Posted on May 19, 2017by Admin

The government’s Public Service Loan Forgiveness Program promises to cancel any remaining student debt for those who work government jobs or for non-profit organizations and have been making continuous payments for 10 years. The first borrowers to receive forgiveness will be eligible in October of this year, which is 10 years from the launch of the program.

Many teachers, public defenders, Peace Corps workers, and law enforcement officers may qualify for forgiveness. More than 400,000 people have applied for the program so far, but signing up for the program can be a confusing, (and not surprisingly) complicated process.

Here are 5 steps you can take to help ensure your eligibility:

Find out if your job qualifies. There are three different types of jobs eligible.

Government jobs, which include federal, state, local and tribal government entities, as well as the military, Peace Corps and AmeriCorps positions.
People who work for a 501(c)(3) non-profit.
People who work for a non-profit that does not have 501(c)(3) status, but provides a public service.

Turn in the Employment Certification form annually. Ask your loan servicing company to certify that your employer qualifies on an annual basis and keep detailed records. Otherwise, you risk finding out that your job does not qualify after making years of payments.
Verify you have the right kind of loan. Only Direct Loans qualify for this forgiveness program.
Enroll in an income-driven repayment plan, each year. You must be enrolled in an income-driven repayment plan for at least a portion of your repayments. These plans cap your monthly bill at a certain portion of your income.
Make 120 qualifying monthly payments. FedLoan Servicing will tell you how much you need to pay each month for the payment to count toward the 120 needed to receive debt forgiveness. If you pay any less, it will not count. And if you pay more, it will only count as one payment. Payments must be made no later than 15 days after the due date. Any payments you make while in school, during the six-month grace period after school, or while in deferment or forbearance do not count toward the 120.

Click here to read more on this story.

For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.