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5. Student Loan Cancellations and Repayment Assistance Reminder Student loan forgiveness. The American Rescue Plan Act of 2021 modified the treatment of student loan forgive- ness for discharges in 2021 through 2025. Introduction Generally, if you are responsible for making loan pay- ments, and the loan is canceled or repaid by someone else, you must include the amount that was canceled or paid on your behalf in your gross income for tax purposes. However, in certain circumstances, you may be able to exclude this amount from gross income if the loan was one of the following. • A loan for postsecondary educational expenses. • A private education loan. • A loan from an educational organization described in section 170(b)(1)(A)(ii). • A loan from an organization exempt from tax under section 501(a) to refinance a student loan. Loan for Postsecondary Educational Expenses This is any loan provided expressly for postsecondary ed- ucation, regardless of whether provided through the edu- cational institution or directly to the borrower, if such loan was made, insured, or guaranteed by one of the following. • The United States, or an instrumentality or agency thereof. • A state, territory, or possession of the United States; or the District of Columbia; or any political subdivision thereof. • An eligible educational institution. Eligible educational institution. An eligible educational institution is generally any accredited public, nonprofit, or proprietary (privately owned profit-making) college, uni- versity, vocational school, or other postsecondary educa- tional institution. Also, the institution must be eligible to participate in a student aid program administered by the U.S. Department of Education. Virtually all accredited postsecondary institutions meet this definition. An eligible educational institution also includes certain educational institutions located outside the United States that are eligible to participate in a student aid program ad- ministered by the U.S. Department of Education. The educational institution should be able to tell you if it is an eligible educational institution. Private Education Loan A private education loan is a loan provided by a private educational lender that: • Is not made, insured, or guaranteed under Title IV of the Higher Education Act of 1965; and • Is issued expressly for postsecondary educational ex- penses to a borrower, regardless of whether the loan is provided through the educational institution that the student attends or directly to the borrower from the pri- vate educational lender. A private education loan does not include an extension of credit under an open-end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwell- ing. Private educational lender. A private educational lender is one of the following. • A financial institution that solicits, makes, or extends private education loans. • A federal credit union that solicits, makes, or extends private education loans. • Any other person engaged in the business of solicit- ing, making, or extending private education loans. The cancellation of your loan won't qualify for tax-free treatment if it is canceled because of services you performed for the private educa- tional lender that made the loan or other organization that provided the funds. Loan From an Educational Organization Described in Section 170(b)(1)(A)(ii) This is any loan made by the organization if the loan is made: • As part of an agreement with an entity described ear- lier under which the funds to make the loan were pro- vided to the educational organization, or • Under a program of the educational organization that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet TIP CAUTION ! Chapter 5 Student Loan Cancellations and Repayment Assistance Page 37