Home |Student Loan | For those who have completed the full 20-year term of IBR and had their loans forgiven, what was your experience with the tax implications of the forgiven balance? Did the IRS require a lump sum payment, and if you couldn't pay, what options were available, such as wage garnishment, asset seizure, or payment plans?

For those who have completed the full 20-year term of IBR and had their loans forgiven, what was your experience with the tax implications of the forgiven balance? Did the IRS require a lump sum payment, and if you couldn't pay, what options were available, such as wage garnishment, asset seizure, or payment plans?

Abbey Johnson, Helping with Student Loan Documentation
Answered on September 28,2023

IBR was introduced in 2007.

No, nobody has hit the 25 years (for old IBR) or 20 years (for new borrowers after 2014) required for forgiveness on the IBR plan as of 2022

There are some folks that have received forgiveness under the ICR income-driven repayment plan (made available in 1995 but only for Direct loans, a then-pilot program), but in general cancelled debts result in a 1099-C for reporting the forgiven/cancelled amount as income, and you can work with the IRS on a payment plan same as for any other tax debt

You can save up for the "tax bomb". It's federally suspended through the end of 2025 thanks to the American Rescue Plan Act, but if they extend it then you'll see the benefit. There are a handful of states that may tax the forgiveness as income, you'll have to research that one and keep in mind that the status may change in the next 15 years

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Ultimate Guide on SAVE Plan - Payment Calculation, Interest, Forgiveness

Under the Saving on a Valuable Education (SAVE) plan, a single borrower who makes less than $15 an hour will not have to make any payments. Borrowers earning above that amount would save mor..
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