If you’re a student loan debtor who is strapped for cash and having difficulty repaying your student loans, you’ve probably heard of the William C. Ford Income Contingent Repayment Plan. The income contingency repayment plan allows student loan debtors to repay their student loans based on their current income. Depending on the debtor’s income, the student loan payments can be reduced to as little as $0 per month.
That is not a typo, a student loan debtor may be required to pay zero dollars per month if their income is low enough under the income contingent repayment plan and after 25 years the balance of the student loan would be forgiven. However, there is a catch. The student loan debtor would need to pay taxes on the forgiven student loan balance.
This could have grave consequences for the debtor because after 25 years the student loan has most likely doubled and the tax debt will be significant. As we have discussed previously on this blog, discharging student loan debt is next to impossible; but there are circumstances that would warrant a student loan discharge in bankruptcy. If you are facing overwhelming debt, including student loans, speak with the bankruptcy attorneys at Allmand law to find out if your student loan debt may be dischargeable in bankruptcy.