OK yeah, you touched on a very strange aspect of the American student loan system. When students have their loans forgiven (and they aren’t eligible for the Public Service Loan Forgiveness Program), it gets added as taxable income which turns it into an IRS debt. Why is it done this way when other countries just forgive the loan outright?
Because when laws are made in America, they start with the goal of making it as incomprehensible and ridiculous as possible. Gold star if you kill a small forest while printing out the bill.
One point is that the taxable income event only happens for borrowers working in the private sector. If you’re in the government, academic, or not for profit world, you’re probably ok.
I think the real reason they did it this way is because it sounded good at the time and nobody properly thought through it. By the time the IRS issued their interpretation, Congress had already moved on to the next topic.
Expect future reforms to the system to address this. Eventually the IRS will send out a bunch of bills that can’t be paid, and they’ll be forced to address it.
There may be many people in the government that really do want to help people, but the apparatus of government is just woefully incapable of actually doing it. (Healthcare, Higher education costs, Tax legislation, etc.)
Thank God for private citizens like Travis Hornsby and studentloanplanner.com. If you’re six figures deep and scared out of your mind, this would be a great place to start.