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College Loan Forgiveness Will Probably Be Tax-Free

The stimulus bill that just passed Congress and is to be signed today includes a possible bonus for student loan holders. It includes a provision that makes student loan forgiveness tax-free. In my August 26, 2020 post, I covered the possibility that taxes could be levied on amounts of student loans forgiven. What a nasty surprise that would have been. Well, that surprise has been taken away.

There’s still no guarantee that there will be student loan forgiveness at all. But if it happens, the amount is more likely to be closer to $10,000, rather than the $50,000 that is being floated by some members of Congress. For that, we’ll just have to wait and see.

The interesting thing about this tax exemption is that it applies to most loans, including private student loans that are forgiven. Of course, the private student loan issuers are under no obligation to forgive anything. Congress passing forgiveness for federal student loans won’t force those issuers to act. I can’t think of any incentive for a private student loan issuer to forgive money owed to them. But who knows?

On another side of the stimulus, I would urge everyone to be careful with the cash payments that come with this bill. The recommendations from my June 4, 2020 post is as follows:

  1. Pay off debt with it.
  2. Or, use it to add to or start an emergency fund.
  3. Or, use it to help support worthy organizations (your church, ministries, non-profits in your community). Most of those will be hit hard by the financial upheaval of the pandemic.

Thanks for reading.

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