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Student loan debt: Tax and other considerations

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Student loan debt: Tax and other considerations

With regularity, major news sources are publishing articles about the crushing student loan debt burden

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  • The COVID-19 pandemic has renewed focus on the student loan debt crisis. In response to the pandemic, under a provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, and a presidential order, government-held federal student loans are in administrative forbearance through the end of 2020, meaning that no payments need to be made on the loans and interest does not accrue on the suspended payments during that time.
  • The CARES Act also made payments on an employee’s student loan principal and interest by an employer under an education assistance program excludable from the employee’s income.
  • On their own, an increasing number of employers have created student loan repayment assistance programs to help recruit and retain quality employees.
  • To make student loan repayment more manageable, the U.S. Department of Education offers several forms of income-driven repayment plans for federal student loans. A growing number of colleges also offer income-share agreements that pay the cost of a student’s college education in exchange for a set percentage of the individual’s future income for a certain number of years.
  • Borrowers may be eligible to have student debt forgiven without incurring cancellation-of-debt income in certain situations, such as where the borrower agrees to work for a certain period in an underserved profession or underserviced geographic area, the borrower becomes insolvent or bankrupt, or the borrower’s school ceases operation.
  • Distributions from 529 plans or retirement plans may also be options for borrowers to make student loan payments.

Prior to the COVID-19 pandemic, the competition to attract and retain talent was fierce. While national unemployment has surged, in certain industries the shortage of qualified workers remains. 1 According to a recent survey by the organization American Student Assistance, one benefit employees find desirable is assistance with paying off their student loan debt. 2

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