@gordonowski wrote:
@Opus 17 wrote:
Only you can decide if it works for you. You're going to owe about $35,000 in state and federal income tax when that $100K balance is forgiven, through. Better start saving.
FYI - for others that might find this thread later, while this is true for certain loan forgiveness programs, this doesn't appear to be the case for PSLF: (source: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service/questions)
Are loan amounts forgiven under PSLF considered taxable by the IRS?
No. According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF aren’t considered income for tax purposes.
I'm actually pretty concerned about this. The actual text of the tax code says that loans can be forgiven tax free "if such discharge was pursuant to a provision of such loan under which all or part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers."
This has always applied to loans where the conditions of loan were disclosed up front and part of the deal. Such as, "we'll forgive your med school student loans if you work at least 5 years in an under-served area."
The problem is that PSLF applies this principle retroactively. You can take the loans out with no thought of working for a 501(c)(3), then look at your debt and say "holy crap I better do something about this" and apply for PSLF. Forgiveness was never a "provision" of the loan when it was made, it was retroactively applied. If my reading is correct, the IRS might be going along with it now, but a different commissioner of the IRS might change their mind, or someone could sue to stop the program.
Now, maybe the federal government was clever enough to mention PSLF in the original loan documents when your wife signed them 10 years ago. That might may the loan "subject to a provision" of potential forgiveness.
What I really wanted to find but was unable is a Revenue Ruling, that would make me happier about the tax forgiveness. Hopefully you are right and it will work out.
https://www.law.cornell.edu/uscode/text/26/108#f_1
