CLAARP Benefits NOT Taxable as Income
Sweet! The Internal Revenue Service has determined that recipients of the short-lived Civil Legal Assistance Attorney Repayment Program (CLARRP) do NOT need to pay income tax on the benefits they receive.
I was somewhat concerned that repayment benefits might be deemed taxable, because both Federal Family Education Loans (FFEL) and Federal Direct Loans were eligible for repayment assistance under CLAARP, and tax free benefits require forgiving debt owed to the forgiver, rather than repaying debt owed to another.
In it's analyis, the IRS makes the excellent point that although the Department of Education is not the lender of the FFEL loans, it does guaranteed the debt, and so when the Department of Education repays FFEL loans, that's close enough to forgiveness to count. I like it!
Read the IRS letter.