While most of us are stuck with paying for our student loans, there are programs in place to help certain professions with their loads of debt. Public Service Loan Forgiveness (PSLF) as well as qualifying income-driven repayment plans can provide some with relief. But, there can be a catch…
PSLF is available to those who work in government or not-for-profit and make 120 consecutive qualifying monthly payments towards their student loans. There are a lot of details around this, but those are for another day. Check the PSLF link above if you’re interested in learning more. To be eligible, an individual must complete the PSLF Employment Certification Form for each year that they worked for an eligible employer and made eligible payments. If all of the requirement are satisfied, then any remaining federal student loan balances will be forgiven.
Income-driven repayment plans tie your student loan payments to your income. If you fulfill all of the requirements, including recertifying annually, then any remaining federal student loan amount at the end of 20-25 years (depending on payment plan) will be discharged.
Keep in mind that these programs are for Federal student loans. You’ll likely end up being responsible for paying all of your private student loans yourself, even if you work for the government or a nonprofit.
Currently, any loans that are forgiven under PSLF are not treated as taxable income. However, loans discharged under the income-driven repayment plan options after 20-25 years of payment are treated as taxable income in the year that they’re forgiven. This is something to be aware of since laws always change and there has been some discussion about this topic recently.
For example, if someone had $100,000 of student loans forgiven under PSLF, then they would not have to pay any taxes on that amount. However, if someone were in the 24% tax bracket and had $100,000 of student loans discharged under a repayment plan, then they could have an extra $24,000 of taxes to pay in that year.
Before using these programs, you should run the numbers to see if it’s worth utilizing them. You could actually end up paying more in payments and taxes than if you were to just pay the loans off more quickly.
