Loan Forgiveness

[cloudeleven]

What is the name of your state? Illinois

My mom received loan forgiveness of her Stafford student loans this year under the Teacher Loan Forgiveness Program administered by the US Dept. of Education. Under this program, you can receive Stafford loan forgiveness if you are a math, science, or special ed teacher and teach for 5 years in a poor/underserved district. Her loan was under the Federal Family Education Loan Program (FFELP), and she received it from Sallie Mae.

Does she need to report the loan forgiveness as income on her 2007 tax return? I am under the impression that she does not because IRS Pub. 525 has the following exception:

"Student loans. Certain student loans contain
a provision that all or part of the debt incurred to
attend the qualified educational institution will be
canceled if you work for a certain period of time
in certain professions for any of a broad class of
employers.
You do not have income if your student loan
is canceled after you agreed to this provision
and then performed the services required. To
qualify, the loan must have been made by:
1. The Federal Government, a state or local
government, or an instrumentality, agency,
or subdivision thereof,
2. A tax-exempt public benefit corporation
that has assumed control of a state,
county, or municipal hospital, and whose
employees are considered public employ-
ees under state law, or
3. An educational institution:
a. Under an agreement with an entity de-
scribed in (1) or (2) that provided the
funds to the institution to make the loan,
or
b. As part of a program of the institution
designed to encourage students to
serve in occupations or areas with un-
met needs and under which the serv-
ices provided are for or under the
direction of a governmental unit or a
tax-exempt section 501(c)(3) organiza-
tion (defined later)."

[abezon]

And what did the DoE say when she called to ask if they were going to report the forgiveness as income or not? What do her loan documents say? I suspect you are correct, but the DoE will have a much better & more definitive answer.