Comments on: Student Loan Forgiveness and Refunds: What Gets Taxed

By: Michael P. Lux, Esq.

Michael P. Lux, Esq. — Sat, 26 Oct 2024 20:11:50 +0000

Hey, Eric. It’s really hard to answer that question without knowing a lot more information. For starters, when was the debt forgiven? The current law is temporary and expires in 2026, but if your duaghter’s debt was forgiven before it took effect, she might potentially owe taxes on the forgiveness. Additionally, the type of forgiveness she recieved might also be a factor.

Unfortunately, there isn’t an easy answer to this question.

By: Eric Turner

Eric Turner — Fri, 25 Oct 2024 12:25:59 +0000

Why did my daughter receive a letter from the IRS claiming that she owes taxes on her student loan that she qualified to have forgiven for working in schools that met the requirements for it?

By: Michael P. Lux, Esq.

Michael P. Lux, Esq. — Thu, 25 Apr 2024 14:48:51 +0000

In reply to Richard Schriever.

There are a couple of things to clarify here.

First, when a loan goes from one servicer to another it is not being sold. This is the case with private loans, but when a federal direct loan changes servicers, the Department of Education is simply using a different company to collect payments and service your loans. This should not reset your payment history or progress toward forgiveness.

At the point you consolidated your FFEL loan into a direct loan, you took the steps necessary to get credit for that payment history, but there are no refunds issued for FFEL loan payments because the payment went to a third party, which means there should not be any tax implications.

Going back to your original question, I know you are looking for a definitive answer from me, but it is ultimately a tax question that I’m not comfortable answering because it falls outside the scope of my expertise and I don’t want to give you bad information. If you are doing your own taxes, I’d suggest reaching out to TurboTax or whatever software provider you use. Alternatively, you may wish to reach out directly to the IRS.

By: Richard Schriever

Richard Schriever — Wed, 24 Apr 2024 22:29:35 +0000

Well, I am my own tax preparer and have been all my life, as well as doing tax filings for my own business and for an employer’s business I managed. The “recounting”adjustments that applied to me as well as to anyone whose original loans were sold from one service provider to another (resetting the years that “counted” toward 25 year forgiveness) were very common. Because of those sales and reser of “counts” of years I lost 13 years if credit toward the 25 year count before I consolidated my loans under a direct loan. As a result, I actually made payments for 31 years before the current administration’s recognition of the impact those practices by services had on so many of us.

By: Michael P. Lux, Esq.

Michael P. Lux, Esq. — Wed, 24 Apr 2024 14:33:54 +0000

In reply to Richard Foster Schriever.

Richard, this is a really tricky question. I reached out to a couple of tax experts and didn’t really get conclusive guidance on it, but I do have a few thoughts to share.

First, the situation you describe is pretty rare. If there are over-payments it typically amounts to no more than a few months and should be resolved before you file taxes the following year.

Additionally, the tax documents you receive might also shed some light on the situation. In this case it would be a 1099-C for the debt cancellation or a revised 1098-E from the prior years.

Ultimately, this is a question best directed to your tax preparer.

By: Richard Foster Schriever

Richard Foster Schriever — Tue, 23 Apr 2024 02:55:47 +0000

What about payments that were made that were all interest, which was deducted from previous years’ taxes, that are part of the refund of overpayment. Wouldn’t that deductible amount then become taxable income? For example, 4 years’ worth of interest only over-payments on an IDR that was deductible student loan interest for each of those 4 years.