Student loan forgiveness and repayment programs

Due to rising tuition costs, the number and size of student loans have increased dramatically in recent years. Indeed, for many, student loans are readily available. The problem starts after graduation when loan payments begin. For those students who pursue careers in the high-demand/low-reward public service arena, the repayment problem is especially acute. Over the past 15 years, Congress has attempted to alleviate this problem by various means, including extending the repayment period for student loans, creating debt forgiveness and debt repayment programs, and even providing a tax deduction for the payment of student loan interest. Private-sector employers in high-demand professions have joined in, offering their own student loan repayment plans as a recruitment tool. As a result, recent graduates face a bewildering array of options for dealing with the substantial student debt that they have accumulated, often over the better part of a decade. Those who successfully negotiate this maze and find a repayment plan or debt forgiveness plan that meets their needs are often surprised by the income tax consequences of their decisions. To provide a roadmap for these students and their tax advisers, this article describes the more prevalent loan forgiveness and loan repayment programs, along with the associated tax consequences.