With the Obama student loan forgiveness program, you can avoid paying taxes for your forgiven federal student loans. That's because one of the programs that go by the unofficial nickname of Obama student loan forgiveness not only forgives your student debt after 10 years of payments, but it also does it without a tax penalty. Without this debt forgiveness program, people would have to pay up to tens of thousands of dollars in taxes for their loans to be exonerated. Here's how you can avoid that with federal student loan forgiveness.
One part of the Obama debt forgiveness program is the repayment plan, or how you pay back your federal student loan. Typically, the repayment options allow you to pay 10% of your income per year and then it forgives your debt after 20 years of payments. However, this part of the student loan forgiveness program will generate a tax liability for the amount being forgiven. Thus, if $100,000 of your loan is forgiven, it’s considered income, and you’ll pay heavy taxes on that.
The second part of the Obama student loan forgiveness program, which allows you to have your loan forgiven without paying taxes, is the Public Service Loan Forgiveness program. This part of the Obama federal loan forgiveness program allows people to work for 10 years in the public sector (working for a school, for the government, or for a qualifying non-profit) and then have their student loans forgiven tax-free.
So after working as a public school teacher for 10 years, for example, having made payments through an Income-Based Repayment Plan (IBR) during your public service, the remaining student debt will be tax exempt through the Public Service Loan Forgiveness program, allowing you to save thousands of dollars.