Category: News

The IRS has released the 2021 tax brackets and income tax rates, including tax deductions, tax credits and cost-of-living adjustments. These new tax rates are effective beginning January 1, 2021 and apply for the 2021 income tax year.

In this article, we will discuss:

• Tax Brackets and Tax Rates
• Standard Deduction
• Capital Gains Tax
• Alternative Minimum Tax
• Tax Credits and Tax Deductions

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Tax Brackets and Tax Rates

In 2021, there are seven income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Here is the breakdown depending if you file as:

• Individual Taxpayer
• Married Filing Jointly
• Married Filing Separate
• Head of Household

Standard Deduction

In 2021, the standard deduction will increase slightly to $12,550 for individual taxpayers and married couple filing separately. The standard deduction for married couples filing jointly will be $25,100. The standard deduction for head of households will be $18,800.

Capital Gains Tax

Capital gains taxes are taxes on the growth of the value of an investment when an individual sells that investment. Long-term capital gains is applied to assets or investments that held for more than one year. The long-term capital gains rates are 0%, 15% and 20%. Short-term capital gains is when an asset or investment is sold within one year or less. The short-term capital gains tax rate is the same as the ordinary income tax rate. The table below shows the maximum capital gains rate for 0% and 15%:

Alternative Minimum Tax

The Alternative Minimum Tax, or AMT, applies to taxpayers with higher income and ensures that these taxpayers pay at least a minimum amount of tax. These are the exemptions amount for the Alternative Minimum Tax for 2021:

Tax Credits and Tax Deductions

For 2021, there are many types of tax credits and tax deductions that are available. Here are several tax credits and tax deductions:

Child Tax Credit

For 2021, the child tax credit is $2,000 per child. However, there are phaseouts, including $200,000 of income for individual taxpayers and $400,000 for taxpayers who are married filing jointly.

Earned Income Tax Credit (EITC)

For 2021, the Earned Income Tax Credit (EITC) is a maximum $6,728 for taxpayers who are married filing jointly who have three or more children. Like the child tax credit, there are phaseouts based on income.

Itemized Deductions

Here are some popular itemized deductions:

• Home mortgage interest
• State and local taxes
• Charitable donations
• Medical expenses
• Job expenses

Above The Line Deductions

Here are several popular above-the-line deductions:

• Student loan interest deduction
• Charitable donations

Paying off medical school debt can be daunting. The latest student loan debt statistics show that medical school graduates can have $175,000 of student loan debt. If you feel stressed about student loan repayment, you’re not alone. Many doctors face the same financial hurdle, even if practicing medicine is a lucrative profession.Here are the best ways how to pay off medical school debt:

1. Enroll in an income-driven repayment plan
2. Make extra student loan payments
3. Explore student loan forgiveness
4. Don’t defer your medical school student loans during residency
5. Refinance medical school student loans

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1. Enroll in an income-driven repayment plan

An income-driven repayment plan helps doctors lower their monthly medical school loan payments. Income-driven repayment plans are best for doctors or residents who are struggling to pay student loans.There are four types of income-driven repayment plans:

• Income-Based Repayment (IBR)
• Pay As You Earn (PAYE)
• Revised Pay As You Earn (REPAYE)
• Income-Contingent Repayment (ICR)

The advantage of income-driven repayment plans are that you can lower your monthly payment for your federal student loans with an income-driven repayment plan. Monthly payments are based on discretionary income, family size and state of residence.The advantage of income-driven repayment plans are that you can lower your monthly payment for your federal student loans with an income-driven repayment plan. Monthly payments are based on discretionary income, family size and state of residence.

2. Make extra student loan payments

The advantage of income-driven repayment plans are that you can lower your monthly payment for your federal student loans with an income-driven repayment plan. Monthly payments are based on discretionary income, family size and state of residence.

This student loan payment calculator shows you how much you can save when you make an extra student loan payment for your medical school debt.

For example, let’s assume that you have $200,000 of medical school student loans, and an 8% interest rate and 10-year repayment term. If you pay an extra $200 each month, you would save $11,106 total and pay off your student loans 1.08 years earlier.

3. Explore student loan forgiveness

If you work as a doctor in public service or for a non-profit, you may qualify for student loan forgiveness or student loan repayment assistance programs.

The Public Service Loan Forgiveness program offers student loan forgiveness after 120 monthly payments if you work full-time for a qualified non-profit or a public service employer. The advantage of public service loan forgiveness is that you can receive federal student loan forgiveness after 10 years of qualifying payments. The disadvantage is that you may earn a lower income during this period compared to working in private practice, for example.

There also may be other opportunities for student loan forgiveness from state governments, medical organizations and other foundations and non-profits. If you don’t work in public service, you can still receive student loan forgiveness for your federal student loans for medical school after 25 years of monthly payments. Importantly, you would income tax on the amount of student loan debt that is forgiven. In contrast, if you get student loan forgiveness through public service loan forgiveness, there is no income tax liability.

4. Don’t defer medical school debt during residency

Many residents decide to defer medical school debt during residency. Specifically, they choose to defer federal student loan payments, which pauses student loan payments. Why? The goal of deferment is to save money each month. This can be especially helpful if your salary is relatively low, which is the case for most residents.

However, unsubsidized medical school debt still accrues interest, which can grow your student loan balance. If you have $200,000 of medical school debt and defer your student loan payments for three years, you could owe more than $30,000 of additional student loan interest.

Ideally, even if your salary is low, try to make student loan payments at least to cover the accrued interest.

5. Refinance medical school student loans

Student loan refinancing can save you tens of thousands of dollars on your student loans. For medical school debt, there are two challenges: a high interest rate and a high student loan balance. Student loan refinancing can get you a lower interest rate, which can lower your monthly payment and limit the amount of interest that accrues.

You can refinance student loans when you are a practicing physician. Alternatively, you can complete medical school refinancing as a resident or fellow. When you refinance federal student loans, you won’t have access to student loan forgiveness programs such as public service loan forgiveness or income-driven repayment. So, you should decide whether the amount of savings is worth the trade-off for you.

How much money can you save with student loan refinancing? This student loan refinancing calculator shows you how much money you can save.

For example, let’s assume you have $200,000 of student loan debt, a 7% interest rate and a 10-year repayment term. If you refinance medical school debt with a 3% interest rate, you can lower your monthly payment by $391 and save $46,915 total.

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If you want to pay off MBA student loans or explore student loan forgiveness, the good news is there are several options. Today, 45 student loan borrowers collectively owe more than $1.6 trillion of student loan debt. On average, MBA graduates can owe approximately $70,000 of student loans.

What’s the best way to pay off MBA student loans? Here are three options:

• Student loan refinancing
• Income-driven repayment
• Student loan forgiveness

Student loan refinancing

If you want to pay off student loans fast, then student loan refinancing is your best bet. When you refinance student loans, you get a new student loan at a lower interest rate, which helps you save money and pay off debt faster. Your new student loan is then used to pay off your old student loan. With student loan refinancing, you can lower your monthly payment, choose a fixed or variable interest rate and choose a student loan repayment term from 5 to 20 years. The standard student loan repayment term is 10 years. With a shorter repayment term, you could save significantly on interest. With a longer repayment term, you could lower your monthly payments. You can refinance both your college and MBA student loans together. If you already refinanced your college student loans or MBA student loans, or both, you can refinance again so long as you can get a lower interest rate. There are no fees to refinance student loans, and the student loan refinancing process is easy.

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This student loan refinancing calculator shows you how much money you can save on your MBA student loans when you refinance.

Income-driven repayment

You also could place your federal student loans into an income-driven repayment plan. These are plans based on your discretionary income, family size and state of residency. Typically, you pay 10-20% of your discretionary income. Income-driven repayment plans are not available through the federal government for your private student loans, however. Income-driven repayment plans won’t help you pay off student loans faster. However, if you are struggling to make monthly student loan payments, income-driven repayment plans can help you manage your payments. After 20 years (undergraduate loans) or 25 years (graduate loans), you can get student loan forgiveness on your federal student loans. That said, you will owe income tax on the amount of student loan debt is forgiven. It’s also important to remember that your monthly payment will rise as your income rises. So, an income-driven repayment plan may become more expensive than the standard repayment plan if your income after your MBA rises each year.

Student loan forgiveness

If you work for a public service or non-profit employer, you may consider the Public Service Loan Forgiveness program. While most MBA graduates work in the private sector, you may apply for student loan forgiveness if you work in the public sector. Public service forgiveness requires that you work full-time for a qualified employer and make 120 monthly payments while being enrolled in an income-driven plan like REPAYE. Unlike student loan refinancing, public service loan forgiveness does not help you pay off student loans faster. Rather, public service loan forgiveness takes at least 10 years to complete, and you have to fulfill several requirements. Unlike income-driven repayment plans, the good news is that you won’t owe any income tax on the amount of student loan debt forgiven.

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If you want to know if your student loans are federal student loans or private student loans, the good news is that most student loans are federal student loans. There are several ways, however, that you can double check that you have federal student loans.

1. Check the National Student Loan Data System database
2. Visit Federal Student Aid website
3. Contact your student loan servicer
4. Check your credit report
5. Check your promissory note
6. Check your student loan statement

1. Check the National Student Loan Data System database

You can use your Federal Student Aid (FSA) ID to login to the National Student Loan Data System (NSLDS) website. When you access the NSLDS website, you can determine if you have federal student loans. You can find information on the balance of your federal student loans, disbursements and loan status.

2. Visit Federal Student Aid website

The fastest way to determine if you have federal student loans is to visit the Federal Student Aid (FSA) website located at studentaid.gov. If your student loan appears on this website, then you have a federal student loan. If you don’t any student loans listed, then you don’t have a federal student loan. This website also helps you enroll in an income-driven repayment plan, and can provide information about your outstanding student loan balance.

3. Contact your student loan servicer

You can contact your student loan servicer to determine if you have a federal student loan. Your student loan servicer is the company where you send your student loan payments. You can call 1-800-FED-AID to find your federal student loan servicer. You can ask your student loan servicer whether they service your federal student loans.

4. Check your credit report

You can get a copy of your credit report for free at AnnualCreditReport.com. Your credit report will list your outstanding debt obligations so that you can learn whether you owe federal student loans to the federal government.

5. Check your promissory note

You can check your promissory note to determine if you have federal student loans. Your promissory note is the student loan agreement that you signed before your student loans were disbursed. On your promissory note, you will notice name of your federal student loan program, if you have federal student loans. Examples may include the William D. Ford Direct Loan Program or the Federal Perkins Loan Program.

6. Check your student loan statement

Finally, you can check your student loan statement to determine if you have federal student loans. Your monthly student loan statement will clearly identify the name of your federal student loan servicer and the name of your federal student loan program. Your credit report will also show you your outstanding student loan balance and whether you make on-time payments.

The Free Application for Federal Student Aid (FAFSA) is the form that you complete to apply for financial aid for college or graduate school. You can access the latest FAFSA form on Federal Student Aid, which is part of the U.S. Department of Education.

FAFSA Advice

Here is some helpful advice when completing the FAFSA:

1. FAFSA Deadline

Know the FAFSA deadline in your state. Each state may have a different deadline.

2. Start early

Don’t wait until the last minute to complete your FAFSA. Take your time and prepare in advance so you have sufficient time. The earlier you apply for the FAFSA, the better.

3. FSA ID

Make sure you have your FSA ID when you apply for FAFSA.

4. Complete financial aid forms

In addition to the FAFSA, your college or university likely will have you complete additional forms when you apply for financial aid.

5. Everyone should complete the FAFSA

You never know how much financial aid you may qualify for. If you are applying to college or graduate school, you should complete the FAFSA. Don’t assume you won’t qualify for financial aid.

10 FAFSA Mistakes

Be careful to avoid these common mistakes when applying for financial aid. Here are the 10 biggest FAFSA mistakes:

1. Using a name other than your legal name.
2. Leaving parts of the FAFSA blank or incomplete.
3. Using the wrong address.
4. Using the wrong Social Security Number.
5. Using the wrong income taxes.
6. Using the wrong income.
7. Forgetting to sign the FAFSA.
8. Incorrectly listing your marital status.
9. Forgetting to include yourself as a member of your household.
10. Failing to register for the Selective Service if you’re male and ages 18-26.

FAFSA Document Checklist

To apply for the FAFSA, you will need several key documents. These documents include:

• Driver’s license
• Social Security card
• Any W-2’s or 1099’s
• Income tax returns
• Bank statements

The presidential election is heating up and the outcome could have significant impact on your student loans. If you have federal student loans, private student loans or both, the winner in November could affect how you approach student loan repayment.If President Donald Trump is re-elected, here’s what it could mean for your student loans:

• Student Loan Repayment
• Cancel Student Loans
• Student Loan Forgiveness
• Student Loan Debt Relief
• End Subsidized Student Loans
• Limit Student Loan Borrowing

Student Loan Repayment

Trump has proposed to simplify income-driven repayment plans for your federal student loans. Specifically, Trump would combine the current income-driven repayment plans into a single income-driven repayment plan. Why? Trump wants to simplify student loan repayment and reduce complexity for student loan borrowers.

Trump also would change the way that income-driven repayment works:

Monthly Repayment: Borrowers would pay 12.5% of discretionary income each month. This compares to current income-driven repayment plans that require 10-20% of monthly discretionary income.

Student Loan Forgiveness:Like current income-driven repayment plans, Trump supports student loan forgiveness for borrowers. However, he would change the time it takes to receive student loan forgiveness. For example, if you have undergraduate student loans, you could get student loan forgiveness after 15 years of on-time monthly payments (compared to 20 years today). For graduate student loans, you could get student loan forgiveness after 30 years (compared to 25 years under current income-driven repayment plans).

One challenge of income-driven repayment plans is that borrowers must enroll and then recertify income each year. Trump primarily would keep this provision the same, although some borrowers who are delinquent on student loan payments could be enrolled automatically.

Cancel Student Loans

Will Trump cancel student loans? It’s unlikely. Trump has not supported various proposals in Congress to cancel student loan debt. For example, Sen. Bernie Sanders (I-VT) proposed to cancel all student loan debt, including both private and federal student loans. Sen. Elizabeth Warren (D-MA) proposed to cancel student loans for 95% of Americans, plus a plan to cancel $50,000 of student loans. Senate Democrats proposed to cancel $10,000 of student loans, while House Democrats proposed $30,000 of student loan forgiveness. Despite these proposals, Trump has not supported outright student loan debt cancellation.

Student Loan Forgiveness

Trump supports student loan forgiveness through income-driven repayment plans. However, he proposed to eliminate the Public Service Loan Forgiveness program, which is a federal program to forgive federal student loans for borrowers who work full-time for a qualified public service or non-profit employer and who make 120 on-time monthly student loan payments and meet other requirements. In comparison, Trump’s student loan forgiveness plan would forgive undergraduate student loans after 15 years (compared to 10 years under the Public Service Loan Forgiveness program).

Student Loan Debt Relief

Trump has demonstrated his willingness to use executive orders for student loan relief. For example, in response to the Covid-19 pandemic, he:

• Paused federal student loan payments
• Stopped interest accrual on federal student loans
• Halted student loan debt collection for federal student loans

Trump initially enacted these measures for 60 days. Congress extended these student loan benefits for six months. Trump then extended this student loan relief for another three months through December 31, 2020.

End Subsidized Student Loans

For new student loan borrowers, Trump proposed the elimination of subsidized federal student loans. Subsidized student loans mean that the federal government pays your interest while you are enrolled in school. This helps save you money until you graduate or leave school. In contrast, unsubsidized student loans start accruing interest once they are disbursed. Under Trump’s plan, federal subsidized student loans would be eliminated, so borrowers would borrow unsubsidized federal student loans.

Limit Student Loan Borrowing

“How much can I borrow in student loans” is a popular question among student loan borrowers. According to the latest student loan debt statistics, 45 million student loan borrowers collectively owe $1.6 trillion of student loan debt. To limit the amount of student loans, Trump would limit the amount of Parent PLUS Loans and PLUS Loans for graduate school. Parent PLUS Loans are federal student loans that parents borrow to fund their dependent child’s education. PLUS Loans also can be used to pay for graduate school. Under Trump’s plan:

Parent PLUS Loans: Borrowers would be able to borrow up to $26,500 of Parent PLUS Loans.

PLUS Loans: Borrowers could borrow up to $50,000 per year for PLUS Loans for graduate school, with a maximum lifetime total of $100,000.

How do you cancel student loan debt? The good news is that you can get student loan forgiveness through several different programs. Most programs are available for federal student loans, but not for private student loans. Contact your student loan servicer to discuss federal student loan forgiveness. That said, if you have private student loans, contact your student loan servicer to explore options.

Here are some programs for you to consider:

1. Income-Driven Repayment Plans
2. Public Service Loan Forgiveness
3. Teacher Loan Forgiveness
4. Military Student Loan Forgiveness
5. State Student Loan Forgiveness Programs
6. Loan Repayment Assistance Programs
7. Perkins Loans Cancellation
8. Cancel Student Loan Debt
9. Total and Permanent Disability Discharge
10. Borrower To Defense Repayment Discharge
11. School Closes Discharge
12. Death Discharge

Student Loan Forgiveness Programs

1. Income-Driven Repayment Plans

Income-driven repayment plans offer student loan forgiveness for your federal student loans. To get student loan forgiveness, you must make monthly student loan payments for 20 years (undergraduate student loans) or 25 years (graduate student loans). Your student loan payments must be on-time and in full. If you have lower income and a higher student loan balance, an income driven repayment plan such as IBR, PAYE, REPAYE or ICR may benefit you.

2. Public Service Loan Forgiveness

The Public Service Loan Forgiveness program is a federal student loan forgiveness program that is available to borrowers who work full-time (at least 30 hours a week) for a qualified public service or non-profit employer. There are many requirements to satisfy to cancel student loan debt, including making 120 monthly student loan payments on-time and in full. You must make a majority of your monthly paymentswhile enrolled in an income-driven repayment plan. Importantly, only Direct Loans are eligible for public service loan forgiveness. If you have FFELP or Perkins Loans, for example, consolidate these student loans into a Direct Consolidation Loan.

3. Teacher Loan Forgiveness

The Teacher Loan Forgiveness program is available to teachers who are employed full-time in low income public elementary and secondary schools. To qualify, teachers must work at least five consecutive years  and can receive up to $17,500 of student loan forgiveness. Teacher Loan Forgiveness applies only to federal student loans, including Direct Loans.

4. Military Student Loan Forgiveness

If you serve in the U.S. Armed Forces, including the Army, Navy, Air Force, Marines, Coast Guard and National Guard, you may qualify for up to $50,000 of student loan forgiveness. Through the Student Loan Repayment Program, you could have at least some of your federal student loans forgiven.

5. State Student Loan Forgiveness Programs

Most major federal student loan forgiveness program are offered through the federal government. However, your state may offer student loan relief too. Contact your state’s Department of Education for more details on programs to cancel student loan debt or help with student loan repayment.

6. Student Loan Repayment Assistance

Many states and organizations offer student loan repayment assistance to student loan borrowers. If you work in public service, including as a doctor or lawyer, for example, you may eligible to receive annual help with your student loans. Known as LRAPS, these programs are separate from Public Service Loan Forgiveness program, which is a federal program.

Cancel student loan debt

7. Perkins Loans

It’s possible to cancel Perkins Loans. If you have Perkins Loans, you can get up to 100% of your Perkins Loans if you work in public service for at least five years.

8. Cancel Student Loans

There are currently no plans to cancel all your student loan debt. Senator Bernie Sanders (I-VT) proposed to cancel all federal student loans and private student loan debt. Other proposals in Congress have called for student loan forgiveness for up to $50,000 of student loan debt. Senate Democrats have called for $10,000 of student loan forgiveness debt forgiveness. If they become law, these partial student loan forgiveness proposals to cancel student loan debt may forgive federal student loans, private student loans or both.

Student Loan Forgiveness Programs

There are several options to discharge student loans. Student loan discharge is different than student loan forgiveness. Based on these specific circumstances, it’s possible to have immediate student loan forgiveness in these situations:

9. Total and Permanent Disability

If you are disabled permanently, including either mentally or physically, and are unable to work, you may be eligible to have your federal student loans discharged. You can learn more at disabilitydischarge.com, including the requirements and what supporting documentation is needed. For private student loans, contact your lender or student loan servicer to inquire about discharge options for total and permanent disability. If you are a veteran, your federal student loan debt is discharged automatically if you have a total and permanent disability.

10. Borrower Defense to Repayment

Borrower defense to repayment is a rule initiated under the Obama administration that student loan borrowers can use a reason for discharge if they were defrauded by their school. You can file a borrower defense to repayment claim with the U.S. Department of Education, although the U.S. Department of Education has discretion to approve your claim to discharge your student loans.

11. School Closes

If your school closes while you are enrolled, you may be eligible for student loan discharge for your federal student loans. You can apply through your student loan servicer. To qualify, you must be enrolled or recently enrolled within 120 days and did not receive a degree. Make sure to keep making student loan payment while your application is processed and until approved.

12. Death

If you die, your student loans will be discharged. A death certificate must be submitted to your student loan servicer to discharge your federal student loans. It’s also possible to get Parent PLUS forgiveness. Parent PLUS Loans are also discharged at death, if your parent borrowed a Parent PLUS Loan.

We asked the experts at Mentor Money for their best advice on how to pay off student loans. According to Mentor Money, the latest student loan debt statistics show that 45 million borrowers collectively owe more than $1.7 trillion. On average, that’s about $30,000 per student loan borrower. What’s the best way to pay off student loans?

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Here’s the best advice to pay off student loans:

• Always pay at least the minimum payment
• Enroll in autopay
• Make extra student loan payments
• Sign up for an income-driven repayment plan
• Refinance student loans
• Pay off your highest interest rate loans first
• Pay off your smallest student loan balance first
• Use extra cash to pay off student loans
• Make payments while in school

Always pay at least the minimum payment

When it comes to student loan repayment, always make sure to pay at least the minimum payment each month. This helps ensure that you make full, on-time payments. If you skip or miss student loan payments, your credit score can be adversely impacted. By paying the minimum payment, you will keep current on your student loan payments.

Enroll in autopay

Enroll in autopay to ensure automatic withdrawals to pay your student loans each month. Contact your student loan lender for details how to link your bank account to your student loan account. Some lenders may offer you a 0.25% interest rate reduction when you enroll in autopay. For example, if your student loan interest rate is 7.5%, your interest rate may be decreased to 7.25%, or a 0.25% discount, when you enroll in autopay.

Make extra student loan payments

The minimum payment is only the least amount you should pay each month for your student loans. However, you can pay a higher amount or pay more frequently. Why would you pay more money than required? The reason you make extra student loan payments or higher student loan payments is to save money on interest and reduce your principal balance.

This extra student loan payment calculator shows you how much money you can save when you make an extra student loan payment.

Sign up for an income-driven repayment plan

If you have federal student loans, one option is to enroll in income-driven repayment plans. If you are struggling to repay student loans, an income-driven repayment plan bases your monthly student loan payment on your discretionary income, family size and state of residence. There are four main types of income-driven repayment plans:

• Income-Based Repayment (IBR)
• Pay As You Earn (PAYE)
• Revised Pay As You Earn (REPAYE)
• Income-Contingent Repayment (ICR)

If you make full, on-time monthly payments for 20 years (undergraduate student loans) or 25 years (graduate student loans), you could receive student loan forgiveness.

Refinance student loans

Student loan refinancing helps you get a lower interest rate, save money and pay off student loans faster. You can refinance federal student loans, private student loans or both. With student loan refinancing, you can choose a fixed or variable interest rate as well as your loan term, which can range from five to 20 years. A lower interest rate means you can save money on interest. To qualify, you need a credit score of at least 650, recurring monthly income and enough cash flow for living expenses and debt repayment.

This student loan refinancing calculator shows you how much money you can save with student loan refinancing.

Pay off your highest interest rate loans first

After you make your minimum monthly payment, you can make an extra payment on your highest interest rate loan. Why? Don’t focus on your loan balance; focus on you interest rate. Your goal should be to pay off the highest interest rate loan first to limit the accrual of interest.

Pay off your smallest student loan balance first

With this strategy, start by making the minimum monthly payment. As an alternative to paying off the highest interest rate loan first, you could pay off your smallest student loan balance first. Why? Pay off the smallest balance first to build momentum. Start with the smallest loan balance, and once you pay it off, you can move to repay the next highest student loan balance. Continue to build more momentum as you pay off each loan.

Use extra cash to pay off student loans

If you have any extra cash – from a bonus, tax refund, inheritance or any other sources – consider making a lump-sum student loan payment.

This lump-sum student loan repayment calculator shows how much money you can save.

Make payments while in school

Get ahead of your student loan payments while you’re in school. Unsubsidized student loans begin to accrue interest while you’re in school. You’re not required to make student loan payments while you’re in school. However, if you are able to start making payments while you’re a student, consider making payments of any amount to reduce principal and save money on interest.

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If you get student loan forgiveness, it’s possible that you may owe income tax on the amount of student loans you get forgiven. Here’s what you should know about student loan forgiveness and taxes, and how you can manage your student loans accordingly.

Will I owe taxes on student loan forgiveness?

“Will I owe taxes on student loan forgiveness?” is a popular question about student loans. The answer depends whether you receive student loan forgiveness through an income-driven repayment plan. An income-driven repayment plan is a student loan repayment plan offered by the federal government that sets your monthly payment based on your discretionary income, family size and state of residence. There are four main income-driven repayment plans:

• Income-Based Repayment (IBR)
• Pay As You Earn (PAYE)
• Revised Pay As You Earn (REPAYE)
• Income-Contingent Repayment (ICR)

These income-driven repayment plans offer student loan forgiveness on your federal student loans after 20 years for undergraduate student loans and 25 years for graduate school student loans. When you get student loan forgiveness, you would owe income tax on the amount of student loans that ultimately are forgiven.

How not to pay taxes on student loan forgiveness

Many borrowers will not pay income tax when they get student loan forgiveness. Here are some examples:

• Public Service Loan Forgiveness. The Public Service Loan Forgiveness will cancel student loan debt, and you won’t owe any income tax.
• Teacher Loan Forgiveness. The Teacher Loan Forgiveness also won’t charge you any income tax on the amount of student loans that are forgiven.
• Total and Permanent Disability. If you have federal student loans and become totally and permanently disabled, your student debt can be cancelled and you won’t owe income tax.
• Student Loan Discharge.Through the borrower defense to repayment rule, your student loans can be discharged if your school closed or you were the victim of fraud.

Student loan forgiveness: What will I owe in taxes?

Here’s how student loan forgiveness can affect your income taxes. Under an income-driven repayment plan, you will pay on-time and in-full each month for 20 or 25 years. At the end of the repayment plan, you will have a final student loan balance that will be forgiven. The amount of that student loan balance is taxable to you, the borrower. The amount of tax you owe can be found by multiplying your income tax rate by your final student loan balance. So, if your final student loan balance is $10,000 and your income tax rate is 30%, you would owe $10,000 * 30%, or $3,000 in income tax.

Your personal tax situation may be unique, which can impact how much tax you owe. For example, you may have deductions, credits or other offsets that could impact the final amount of tax you pay when your student loans are forgiven.

How to manage student loan forgiveness

If you have an income-driven repayment plan, don’t think you won’t owe income taxes. Therefore, you must plan in advance. Here are a few action steps to take:

• Choose the right repayment plan. The income-driven repayment plan you choose can impact the amount of tax you may owe. Consider the amount of your monthly payment too. The lower your monthly payment, it’s possible that more interest accrues on your student loan balance. Therefore, you could save money upfront, but you may have a relatively larger final student loan balance. That could potentially mean more income tax liability. Review the income-driven repayment plans to choose the best plan for you.
• Save money. If you have student loans, it may sound counter-intuitive to save money. After all, you may be spending much of your income paying student loans. However, you likely may owe income tax on your student loan balance after 20 or 25 years. Therefore, save enough money to pay your tax bill so you’re not surprised.