If you’re a student who is stressed out with his student loan repayments, you need not fret as you can benefit through student loan forgiveness or loan repayment programs. Through such loan forgiveness programs a student can reduce the amount that he owes to his lender in lieu of choosing certain careers like military service or even voluntary service. Such student loan forgiveness programs can enable the student borrower to waive off an amount from a few thousand dollars to $100,000 on the principal loan amount. Ironically, there are very few applications to such loan forgiveness programs that imply that not many are aware of such opportunities.
Student loan forgiveness vs student loan repayment – Which is the better option?
The student loan forgiveness programs are those that are specially backed by the Federal Government and such programs only cover those loans that are issued under federal programs like Stafford and Perkins Loans. If you enroll yourself in such Federal loan forgiveness programs, a part of your student loan debt will be literally erased from the records of your lender.
On the other hand, the student loan repayment programs are more widespread than the previous option. Through such programs, the student borrowers can eliminate a part of the principal amount that they owe on any type of loan, including all kinds of private loans. Under these programs, the student borrowers may receive additional funds that will help them pay off the original amount or they can even make payments directly to the lender.
Is this forgiven amount subject to tax under the IRS?
Yes, if you go through a student loan forgiveness program, it is most likely that the forgiven amount of debt will be considered as an added income and thereby subject to tax. For instance, if you gain $6,000 from the loans that were forgiven, this may boost the taxable income according to the IRS and you have to pay taxes on the equivalent amount. If you don’t want this amount of money to be taxable, your student loan must especially include provisions that allow the debt to be forgiven. In addition, the loan repayments that are made through NHSC or the National Health Services Corps are tax free.
Thus, if your student loan debts have become overwhelmingly large, you can go for student loan forgiveness and breathe free. Make sure you stay ready to pay taxes on the forgiven amount and emerge as a debt free person.