Don't Mess With Taxes

A related, and larger question, is what will happen to all federal student loans if, as the Trump administration also wants, the U.S. Department of Education is dismantled? And if your student loan already has been canceled, your celebration could be dampened if you live in one of 19 states that wants tax on the forgiven loan amount.

The entrance to the National Museum of Education, located in the U.S. Department of Education headquarters in the Lyndon Baines Johnson Building, Washington, D.C. (Photo by Carol M. Highsmith for LBJ Building Architecture Gallery at GSA.gov)

When the White House announced last week it would exclude certain student loan borrowers from the Public Service Loan Forgiveness (PSLF) program, the excised borrowers would be those who work for organizations that “engage in illegal, or what we would consider to be improper, activities.”

“What we could consider to be improper activities” is a pretty broad category for the Trump administration. When Donald J. Trump made it official with an executive order on Friday, March 7, we got some specifics.

The order lists activities that support for terrorism; "aiding and abetting illegal discrimination;” child abuse, including "the chemical and surgical castration or mutilation of children or the trafficking of children to so-called transgender sanctuary;" violating federal immigration laws; and state law violations, such as "trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways."

Individuals who work for any group involved in the forbidden activities list will no longer be eligible for PSLF.

Experts say that a description of the types of public service employees who are eligible is written into the PSLF law, which was signed by President George W. Bush in 2007. That means any changes to eligibility must go through the lengthy federal rulemaking process.

More likely, the Trump administration will issue new regulations to enforce the executive order. In fact, the White House mandate directs new Department of Education Secretary Linda McMahon to redefine public service in a manner that "excludes organizations that engage in activities that have a substantial illegal purpose."

Either way, the White House’s desired revisions are sure to end up in court.

And the move is just one of the challenges faces students who depended on loans to further and/or complete their higher educations.

McMahon has acknowledged that a big part of her job will be dismantling the department she oversees. She told ABC News that abolishing the agency is rooted in allowing families the right to a "quality education" through school choice.

But, returning to the student loan situation, there's another concern beyond forgiveness of the borrowed funds. Students depending on the money to go to college want to know what will the end of the Education Department mean for them and their loans.

This weekend’s Saturday Shout Outs offer some ideas.

Dismantling of Education Department puts future of trillions of dollars in student loans in question reports Kayla Tausche for CNN.

The Department Of Education May Shut Down In Two Weeks, And Student Loan Programs Could Suffer, warns Adam S. Minsky, a senior contributor to Forbes.

What will happen to student loans if the federal Education Department is closed? asks Mary Ann Koruth in her article for NorthJersey.com

The same question — What will happen to student loans if the Department of Education is closed down? — is examined by Katie Hawkinson, the Washington, D.C., correspondent for The Independent.

And again in What Happens if the Department of Education Is Abolished? Expect Delays, Student Loan Experts Say, according to a report by Dana Miranda and Tiffany Connors for CNET.

And yet again in What Will Happen to Student Loans If the Department of Education Is Closed Down? by Rebecca Schneid for TIME.

Mandy Taheri takes a wider view in her Newsweek article Student Loans: How Donald Trump's Plans Overlap With Project 2025.

And bringing it back to taxes (y’all knew that would happen), the final Saturday Shout Out goes to Wall Street Journal reporter Lori Ioannou who says while canceled or reduced loans are generally tax-free at the federal level, you may face hefty tax bills in 19 states. Details are in her article Have You Received Student-Loan Forgiveness? Plan Now to Avoid a Tax Bomb.

Okay, that’s enough student loan and taxes lessons. It is, after all, the weekend. I'm going to head out to enjoy this lovely Saturday. I hope you’re able to do the same.

You also might find these items of interest:

• A quick lesson on 8 education tax breaks
• A quick lesson on two educational tax credits
• Five 529 plan facts to celebrate National 529 Day
• Student loan interest is one of the two dozen above-the-line tax deductions

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