IRS Taxes and student loans for NRIs in the US (PSLF).

by | Nov 9, 2020 | IRS, IRS credits, IRS e file Return

IRS Taxes and student loans for NRIs in the US (PSLF).

 With the coronavirus spreading its adversities throughout the world, the entire economy across the world has been impacted. Millions of people in the US have lost their jobs and their economic lives have been impacted very badly. Under these circumstances, the different types of loans taken by the common people can be the reason for increased financial instability.

 Out of the different categories of loans, a student loan is the one that can create a lot of economic problems for the NRIs, especially during these COVID times.

 Public Service Loan Forgiveness (PSLF). 

The Public Service Loan Forgiveness (PSLF) is a federal program on which a lot of people rely to have their balances of Student loan to be forgiven. An NRI would be eligible to avail the PSLF if he can meet the below-mentioned criteria:- 

  1. If you have a direct loan
  2. If you are employed full-time in the public sector
  3. If you are making 120 qualifying payments in a month under an income-driven repayment plan 

Which employment qualifies for PSLF? 

You should be working for the below-mentioned employers to be qualified for the PSLF.

  1. You must be working in Government organizations at any level i.e. US Federal, State, Local or Tribal
  2. You must be employed in a non-profit organization which is exempted from tax under Section 501(c)(3)
  3. You must be employed in AmeriCorps or Peace Corps as a full-time volunteer 

You would not be able to qualify for availing the benefit of PSLF if you are employed in

  • Labor Unions
  • Partisan political Organizations
  • For-profit organizations which include for-profit Government contractors 

Qualifying criteria of private loans for PSLF.

 Student loans that have been taken from private lenders are not eligible to qualify for PSLF. The loans such as Federal Direct Consolidation Loans, Federal Direct PLUS Loans, and Federal Direct Stafford Loans qualify for the PSLF. 

If you are choosing to consolidate your loan, only the qualifying payments that are made on the New Direct Consolidation Loan would be included in the 120 payments that are needed for the PSLF. If any payments are made before the consolidation of the loan then they would not be counted. 

How to apply for PSLF? 

There would be two scenarios when it is related to applying for the PSLF. 

  • 120 qualifying points –

    In case you have already made the 120 qualifying points, then you must fill the Public Service Loan Forgiveness Application to apply.  You can easily find out the application for PSLF and the additional information needed at the Federal Student Aid. 

  • Working for making 120 points-

    In case, you are working pro-actively towards making your 120 points then you should submit the PSLF Employment Certification yearly or if you are switching your employers.

 Taxability of the Forgiven loans. 

Any loan money which is considered forgiven under the PSLF would not be considered eligible for taxation. You would not have to pay any federal tax on the money that has been considered eligible under the PSLF.

 The forgiveness of your Student loan would not affect your tax returns for the year 2020. You would not have to report anything different on your Federal tax return than the normal amount to report a return. However, the amount of interest on a student loan that would be deducted will look different from the normal interest paid.

 CARES Act Relief under PSLF.

 According to the provisions of the CARES Act, all payments which were to be made by the common people to the US Department of Education for Federal Student Loans and accrual of interest were suspended until 30th September 2020. However, the US President extended this suspension date until 31st December 2020 by signing an executive order. If you are having a federal student loan, then you will not have to do anything separately for the suspension of the payoff or interest accrual. But, if you are interested in making the normal payments for the payback of the loan then you can do so.

 Moreover, even though the federal loan repayments have been put on hold but you can still qualify for the PSLF. In case, you are having a Direct Loan and you are employed under a full-time employer during the Suspension period, you would be receiving credit towards the PSLF as if you have made your monthly payments on time.

 Conclusion.

 So, these tax provisions and deductions with the student loans related to the NRIs in the US would help you to have a clear understanding of the tax structure.