Latest news with #IDRs
CNBC
3 days ago
- Business
- CNBC
Student loan forgiveness may soon be taxed again — here's how much borrowers could owe
President Donald Trump's "big beautiful bill," which Congress passed earlier this month, has tax implications for people who receive student loan forgiveness. Here's what borrowers expecting the loan relief should know. The American Rescue Plan Act of 2021 made student loan forgiveness tax-free at the federal level through the end of 2025. Trump's "big beautiful bill," while making other specific kinds of student loan relief tax-free, did not extend or make permanent that broader provision. In theory, lawmakers could move to protect the relief from taxes before the end of the year, but borrowers shouldn't count on it, experts say. "Republicans do not like [student loan] forgiveness, and are unlikely to make it tax-free," said higher education expert Mark Kantrowitz. Without action from Congress, student loan borrowers who get their debt forgiven under the U.S. Department of Education's income-driven repayment plans, or IDRs, would face a federal tax bill again starting in 2026. (IDR plans cap people's monthly payments at a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years.) That tax bill at the end of repayment could be significant — the IRS typically counts forgiven debt as income, Kantrowitz said. More from Personal Finance:Trump's 'big beautiful bill' slashes CFPB funding78% say Trump's tariffs will make it harder to deal with debtTax changes under Trump's 'big beautiful bill' — in one chart The average loan balance for borrowers enrolled in an IDR plan is around $57,000, Kantrowitz said. For those in the 22% tax bracket, having that amount wiped out would trigger a tax burden of over $12,000, Kantrowitz estimates. Lower earners, or those in the 12% tax bracket, would still owe around $7,000. Borrowers could also be on the hook for state taxes following their student loan forgiveness. (Many states mirror the federal government's tax policy on student loans, meaning more states may start to levy the aid next year as well, experts say.) Consumer advocates have long criticized the practice of taxing borrowers on their student loan forgiveness. They say that borrowers who enroll in IDR plans tend to struggle to keep up with their bills, and that the government's policy often wipes away one's student debt just to saddle them with a tax debt. "Forcing borrowers to remain drowning in debt is cruel," said Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center. The "big beautiful bill" did permanently make it so that student loan forgiveness in cases of death or disability are tax-free, Kantrowitz said. Employees who receive help from their company paying down their debt also won't owe any taxes in the future on that relief, due to the legislation, he added. The current allowable annual tax-free contribution from firms is $5,250, but that amount will increase with inflation. Public Service Loan Forgiveness has always been, and will continue to be, tax-free on the federal level, under its terms. (It's possible your state will tax you on the aid). That program allows government and certain non-profit workers to get their debt excused after a decade of payments.
CNBC
5 days ago
- Business
- CNBC
Student loan forgiveness paused under a popular repayment plan. Here's what to know
The U.S. Department of Education has temporarily paused debt forgiveness under a popular repayment plan for student loan borrowers. In an FAQ on the department states that loan forgiveness for borrowers enrolled in the Income-Based Repayment plan is on hold while it responds to court orders. IBR is one of the department's income-driven repayment plans, also called IDRs. Congress created the first IDR plans back in the 1990s to make student loan borrowers' bills more affordable. The plans cap people's monthly payments at a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years. More from Personal Finance:Trump's 'big beautiful bill' slashes CFPB funding78% say Trump's tariffs will make it harder to deal with debtTax changes under Trump's 'big beautiful bill' — in one chart IBR will be one of only a few repayment options left to millions of borrowers, after recent court actions and the passage by Congress of President Donald Trump's "big beautiful bill." That legislation phases out several income-driven repayment plans. Here's what to know about the delay in debt relief for IBR borrowers. Student loan forgiveness is paused for IBR borrowers because of court actions involving the Biden-administration-era SAVE, or Saving on a Valuable Education, plan, the department said. Former President Joe Biden touted SAVE as the most affordable income-driven repayment plan in history, but its generous terms soon became a point of controversy for Republicans. In February, the 8th U.S. Circuit Court of Appeals sided with GOP-led states that sued to block the SAVE plan rule, which had sweeping impacts on student loan repayment. For example, under the rule, certain periods during which borrowers postponed their payments would count toward their forgiveness timeline. With SAVE blocked, borrowers no longer get credit during those forbearances. "So the U.S. Department of Education will need to make changes to the qualifying payment counts," said higher education expert Mark Kantrowitz. Ellen Keast, deputy press secretary at the Education Dept., said IBR discharges would resume "as soon as the Department is able to establish the correct payment count." The hold on IBR discharges shouldn't impact student loan borrowers who are still years away from debt forgiveness, experts said. However, they may not receive credit for any periods during which their bills were paused. If you're pursuing debt erasure under IBR, your payments made under the plan (or another income-driven repayment plan) will still be bringing you closer to debt cancellation, as long as you are enrolled in IBR when you become entitled to that relief. If you expected your debt to be forgiven shortly, you should continue making payments, Kantrowitz said. You don't want to be flagged as late. "Any excess payments will be refunded," Kantrowitz said.
The Guardian
06-03-2025
- Business
- The Guardian
Tell us: how you have been impacted by the change to US student loan repayments?
The online application form for several popular student debt repayment plans, such as income-driven repayment plans (IDR), have been taken down by the Donald Trump administration. Applications for IDRs, which cap what borrowers must pay each month at a percent of their earnings, are unavailable on the US Department of Education website. The quiet removal came after a federal appeals court decision earlier this week that continued a pause on Joe Biden's Save program, an income-driven plan for loan forgiveness that would have forgiven debts after as few as 10 years of payments. If you have been impacted by the recent change in student loan repayment options, we would like to hear from you. You can tell us about your student loan repayment options by filling in the form below. Please include as much detail as possible. Please include as much detail as possible. Please note, the maximum file size is 5.7 MB. Your contact details are helpful so we can contact you for more information. They will only be seen by the Guardian. Your contact details are helpful so we can contact you for more information. They will only be seen by the Guardian. If you include other people's names please ask them first. If you're having trouble using the form click here. Read terms of service here and privacy policy here.
