I have a client that has graduated college with significant student loans. She’s currently working as a social worker. Her student loan re-payment plan is the “pay as you earn” program of which allows her to pay back her loans over 20 years based on the amount of earned income she receives each year. She recently had a projection run to illustrate the projected future balance owed after (20) years which resulted in a large balance owed given most of her payments were simply covering interest and very little principle payments. We’re assuming that the balance owed at the end of the 20 year term will be forgiven.

My question is how can I find documentation to determine if the debt forgiveness in the future will be subject to tax? I understand that debt forgiveness “may” or “may not” be subject to tax but I cannot find any documentation that speaks to this situation specifically.

I would appreciate any suggestions.

Thank you,

Bryan Glancy