First of all, nobody here is providing tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
LRAP Promissory Notes are legal agreements that refinance existing student loan debt in exchange for a service commitment. The LRAP refinances existing student loan debt so that it can later discharge the refinanced student loan debt.
LRAPs are designed to discharge student loan debt so that the programs can provide benefits that, in most cases, are not subject to federal income tax pursuant to Section 108(f) of the Internal Revenue Code. LRAP participants who complete the service requirement generally will not have this forgiveness added to their gross income. Section 108(f) of the Internal Revenue Code (IRC) details the requirements for tax-free forgiveness. IRS Publication 970 provides an overview of the treatment of LRAP loan forgiveness. Remember that we are not rendering, or purporting to render, legal, accounting, or tax guidance. Consult with your own legal, accounting, and tax advisors regarding the taxability of the forgiveness of LRAP loans.
Permalink: https://fosterus.org/sp_faq/whats-with-the-lrap-promissory-note/