Hi everyone! I apologize in advance if this topic has been covered already, but I couldn’t find the answer through my regular search venues. I am currently a student about to exit my ‘grace’ period after graduating from college. I haven’t secured a job as of yet and am strongly considering Pay as You earn repayment as I qualify on all its parameters.

My question is—do I pay income tax each year on the loans anyways? This factor is the only one that scares me/prevents me from signing up already. Or is the income tax only charged if the loan debt is forgiven down the line—e.g. you’re charged when it is forgiven after the 20 years pre-specified by the plan?

My total loan burden is about 30k, and I would be worried if my monthly payment was 0 but my end-of-year tax payment was still hundreds of dollars. Anyone have any clarifying information?

Thanks in advance.

—Alex

You do not pay any taxes year-to-year on student loan payments. In fact, under most circumstances, you can use student loan interest as a deduction.

At the end of 20 or 25 years, when your loan would be forgiven, you would pay taxes on the amount forgiven.