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Tax Law (Questions About Taxes)/tax liability on settled student loans


I have recently settled a class action lawsuit against my previous school and lender, and am happy that they are extinguishing my loans. However, I would like to know the tax consequences of that.  Is there a percentage the IRS will collect?  I receive nothing except that they wipe out my loans, so I don't actually get any money in hand.

Thanks so much


Thanks for your question.

You got loanforgivrness, which is taxable income. Unless you are eligible for an exception, which is not likely, you will owe tax on the canceled debt. It will be taxed at your marginal rate which is between 10 and 39.6% depending on your total taxable income.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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