Student loan debt is a serious problem affecting countless Americans. In fact, student loan debt currently tops more than $1 trillion in the United States.
To help people who are overwhelmed by student loan payments, a new program was announced that allows borrowers to “pay as they earn” and have any outstanding debts forgiven after 20 years of consistent payments.
However, even with this benefit, participants could run into trouble as forgiven debt is considered taxable income by the Internal Revenue Service. What that means is that after 20 years of consistent payments and debt forgiveness, the borrower could be slapped with a tax bill well into the thousands.
To help deal with this, a lawmaker from Wisconsin co-wrote a bill called the Relief for Underwater Student Borrowers Act. Essentially, the law would allow borrowers who have been granted debt relief under the Pay as You Earn Program to be exempted from having to pay income taxes on the amount forgiven.
The reasoning behind the bill is that if the borrowers are unable to repay the loans they owe, they are also likely unable to afford the hefty income tax bill that comes along with loan forgiveness. Hopefully, other lawmakers in Washington will recognize the importance of this bill and the positive effect it could have on Americans and the economy.
Are you currently struggling to pay your student loan debt? Are you being harassed by debt collectors? Are your wages being garnished by your student loan servicers? Visit our website for information on what we may be able to do to help.
Source: Fox Business, “Tax Implications of Student Loan Forgiveness,” Bonnie Lee, Aug. 21, 2014
