I am 27 years old and have a Master’s Degree in Social Work. All of my loans are government loans (no private loans). I accrued all of my debt (approximately $89,000) in graduate school. As a social worker, I do not make much per year and have consolidated my loans and am on the income-based repayment plan, paying approximately $140/month.
I have never missed a payment. The agency I work for currently is a for-profit agency, so I have been unable to find any assistance programs to help with paying off my loans early.
At this point, it feels that there is no way I could pay off my loans prior to the 25 year mark where my debt will be forgiven. I am comfortable paying each month on the income-based repayment plan and feel I could continue to do this without defaulting on my loans.
However, I am totally terrified of having to pay taxes on the debt that is forgiven at the end of 25 years. Do you have any suggestions? Is there anything else I could be doing at this time to prepare myself or do things differently? Thank you so much!
Here is what we know for sure. It looks like you are in the most likely program that will benefit you. Thankfully this debt is not private student loan debt and that’s good news. You should be grateful for that.
As it stands now forgiven debt may be taxable but if you are insolvent, meaning your liabilities exceed your assets, the tax may be avoided. Currently there is IRS Form 982 that handles this. See IRS Form 982 is Your Friend if You Got a 1099-C.
We will just have to wait 20 or so years and see what the laws and IRS options are at that time.
I would suggest you just stay aware of options to deal with federal student loans and check in from time to time to see if there are any new programs that may better suit your situation.
Until then, I’d suggest worrying less, if possible, and enjoying the life you’ve got today, more.
Please post your responses and follow-up messages to me on this in the comments section below.