Quick note about the “Relief for Underwater Student Borrowers Act”

The News

In late July of this year, U.S. House Representatives Frederica Wilson (FL-24) and Mark Pocan (WI-02) introduced the “Relief for Underwater Student Borrowers Act, H.R. 5239.”

This bill aims to give the borrowers who have been granted debt forgiveness – i.e. the ones who’ve made 20 years of consistent payments through one of the U.S. Department of Education’s Income Based repayment assistance programs – a break from being taxed on the amount forgiven.


Why It Matters

Presently, the IRS counts waived student loan balances  (amounts forgiven as part of programs like Income Based Repayment, IBR, or Pay as You Earn, PAYE, programs) as income that can be taxed. The only ones that can’t be taxed are the Public Student Loan Forgiveness program and the Teacher Loan Forgiveness program.

Seeing as this amount is often in the tens of thousands, this has created a pretty hefty tax liability for borrowers… who were needing relief from their financial dues in the first place!

So, if this bill were to pass in its current form, any borrower who is participating in a loan forgiveness program, including PAYE or IBR, would no longer need to pay taxes on the forgiven amount, post 20 years of consistent repayment.


A Word from your Student Loan Consultant

Needless to say, if this bill goes through, it will be cause for great celebration.

I have many clients who are presently taking advantage of Income Based Repayment and Pay As You Earn, and I know they’d be very pleased to learn that the savings account they were contributing to for their future tax liabilities, could potentially be used for something else!

Still, now’s not the time to count on this bill passing instantly. It’s wiser to keep up to date on these events, keep on saving (if that’s what your repayment strategy called for) and call your state representatives to encourage them to support this bill. Email works, too.


In the meantime, if you have any doubts about the tax implications and federal regulations governing your student loan debt, please click here to schedule a free consultation with me.

Together, we’ll go over all your loans, both private and federal, your repayment options, your best next steps, and yes, even your potential tax liabilities.

As always, I look forward to being of help. You don’t need to go about managing your student debt repayment alone – seek an expert’s help.




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