Applications for loan forgiveness have continued in recent times, and now students whose education loans have been canceled because their colleges closed will not be paying tax bills on the loans.

IRS to shield students with canceled loans

Last week the Internal Revenue Service (IRS) provided guidance that shield borrowers whose education loans have been canceled from being taken as taxable income. This measure applies to education loans that were canceled on or after January 2016. Individuals affected by this new measure can claim credit or a refund for any overpayment of taxes.

Democratic Senator Patty Murray indicated that although it has taken long for IRS and Treasury Department to come up with such a policy, it is nonetheless welcome. This will be important in that it will protect defrauded education loan borrowers from paying another unnecessary bill. Therefore this is fantastic news for students who received a loan discharge, but there are still many defrauded students saddled with worthless degrees waiting for relief.

In September 2018, Murray and other democratic senators Ron Wyden and Richard Durbin wrote to the IRS, urging it to stop taxing ITT Technical Institute students on canceled fed loans. In July of the same year, Murray and Wyden had sought guidance for former Corinthian College students who got their private loans canceled.

IRS expands tax relief for student loans borrowers

The IRS expanded the measure that offered tax relief to former American Career Institutes and Corinthian students who got their loans concerned under the closed-school discharge statute. According to the statute, anyone enrolled at an institution when it closes or withdrawals 120 days before it shuts down will have their federal loans canceled if they don’t continue studies elsewhere. The federal law has given the Education Department power to cancel the federal debt owed by students whose colleges deceived them about graduation as well as job placement to get them to enroll.

The closure of ITT Technical and Corinthian for fraud and predatory lending has led to a surge in debt relief claims and an increase in closed school discharge applications at the Education Department.