Student loans are among the most burdensome types of debt a person can have. It’s easy to make a few wrong steps and end up paying down this debt for the rest of your adult life. For many, it might not seem worth their degree. Thankfully, student loan forgiveness programs do exist and new tax policies might make it easier to find.
While the Trump administration is trying to change the current student loan forgiveness laws, students are fighting back. States are suing the administration and judges are ruling to uphold these laws. The quickest forms of forgiveness involve doing public service work or being able to prove your college defrauded you in some manner.
So far, over 160,000 students have claimed to be defrauded by for-profit schools. They’ve applied for student loan forgiveness, which until recently, most have been denied. While the federal government isn’t enthusiastic about wiping away debt, important tax measures have been passed.
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Change in Student Loan Forgiveness Discharge Tax Rules
One of the changes the Trump administration did make was to the way taxes handle student loan forgiveness. If you obtained full forgiveness, it was previously considered income you had to pay taxes on. Imagine having $50,000 forgiven instantly and having to cover the tax bill for that! It hindered many students for years to come.
If not fighting against their loans, they were fighting the IRS. It appears to be a never-ending battle for students who don’t want to be burdened the rest of their lives. There are also other changes that took place as well. If a loved one with student loans dies, those loans will be forgiven automatically and are no longer taxable.
The same goes with becoming permanently disabled. In these ways, the government is helping students who qualify for student loan forgiveness. Their forgiveness due to unforeseen events will no longer be seen as taxable income. Despite that, the law is not retroactive. That means you can only obtain student loan forgiveness after January 1st of 2018.
If you became disabled before that date, student loan forgiveness will still be seen as a taxable income. The bill does expire on December 31st of 2025. That means people are protected for the next seven years. That is unless Congress decides to expand these protections and continue to protect students.
Why These Changes Are Important
There’s a great battle playing out right now about student loan forgiveness. As much as students may not appreciate President Trump’s position, it’s a fair one. Depending on who you ask. Is it really fair for the federal government to use taxpayer money to pay off student loans? A lot of people don’t think it is.
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As much of a crisis as student loans are in this country, it’s still a decision someone made. If you decide to take out a loan to go to college, you should still be expected to pay that back. Student loan forgiveness should rightfully be granted only in a handful of severe cases. Of course, the argument on the other side is that $1.53 trillion worth of debt is a severe case of need.
But we’re not talking about the millions of students who weren’t defrauded, died, and aren’t disabled. We’re talking about those students who cannot pay back their loans under any circumstances. The fact that getting their loans discharged for legitimate reasons came with a heavy tax burden was devastating.
The tax burden for student loan forgiveness was so high, it kept people from rightfully discharging their loans. Thankfully, that time is over. Those who are vulnerable and need help the most can receive it. Hopefully, the government will continue to implement fixes that will help more students in the long run.
