Publication 970 |
2000 Tax Year |
Canceled Student Loan
Generally, if you are responsible for making loan payments, and the
loan is canceled (forgiven), you must include the amount that was
forgiven in your gross income for tax purposes. However, if your
student loan is canceled, you may not have to include any amount in
income. This section describes the requirements for tax-free treatment
of canceled student loans.
Which Loans Qualify?
To qualify for tax-free treatment, your loan must contain a
provision that all or part of the debt will be canceled if you work:
- For a certain period of time,
- In certain professions, and
- For any of a broad class of employers.
The loan must have been made by a qualified lender to
assist the borrower in attending an educational
institution.
Qualified lenders.
These include the following.
- The government -- federal, state, or local, or an
instrumentality, agency, or subdivision thereof.
- A tax-exempt public benefit corporation that has assumed
control of a state, county, or municipal hospital and whose employees
are considered public employees under state law.
- An educational institution if the loan is made:
- As part of an agreement with an entity described in (1) or
(2) under which the funds to make the loan were provided to the
educational institution, or
- Under a program of the educational institution that is
designed to encourage students to serve in occupations or areas with
unmet needs, and where the services required of the students are for
or under the direction of a governmental unit or a tax-exempt
section 501(c)(3) organization.
In satisfying the service requirement in (3)(b), the student must
not provide services for the lender organization.
Educational institution.
This is an organization with a regular faculty and curriculum and a
regularly enrolled body of students in attendance at the place where
the educational activities are carried on.
Section 501(c)(3) organization.
This is any corporation, community chest, fund, or foundation
organized and operated exclusively for one or more of the following
purposes.
- Charitable.
- Religious.
- Educational.
- Scientific.
- Literary.
- Testing for public safety.
- Fostering national or international amateur sports
competition (but only if none of its activities involve providing
athletic facilities or equipment).
- The prevention of cruelty to children or animals.
Refinanced loan.
If you refinanced a student loan with another loan from an
educational institution or a tax-exempt organization, that loan can
also be a student loan.
It is a student loan if it was made under a program of the
institution or organization designed to encourage students to serve in
occupations or areas with unmet needs, and where the services required
of the students are for or are under the direction of a governmental
unit or a tax-exempt section 501(c)(3) organization.
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