Student loan debt deal comes with tax catch

Kelsey Snell:

Millions of taxpayers struggling with student loan debt are being pitched what may seem like a dream come true this tax season: lower monthly payments and a chance to see a chunk of their debt disappear.

But there’s a catch: the potential for a huge tax bill down the road.

The new push from the Departments of Treasury and Education uses tax time to promote the opportunity for a borrower to have their entire debt repaid after 20 or 25 years. The agencies are partnering with TurboTax, the tax software used by more than 18 million Americans, to advertise the deal.

It’s part of an administration-wide effort to make college affordable, but consumer advocates worry that the tax-time pairing fails to fully disclose that the debt forgiveness counts as income and will likely lead to a bill from the Internal Revenue Service. Some even liken it to the too-good-to-be-true mortgages that played a role in the collapse of the housing market.