After January 1, 2018 borrowers whose student loans are forgiven due to “total and permanent disability” no longer have to pay federal income taxes on those forgiven loans. Anyone who is permanently disabled, including military veterans, will no longer be hit with a tax bill when their student loans are eliminated (referred to by the IRS as ‘forgiveness of debt’).
The Bad News in the 2018 Tax Law:
Unfortunately, the change is not retroactive. This is all part of a massive overhaul of the tax code spelled out by the Tax Cuts and Jobs Act. Those borrowers whose loans were forgiven before January 1, 2018 will still have to pay the taxes (as ordinary income); but should talk to their accountant to see if there are other exceptions (see IRS form 982).
Note: according to the U.S. Government Accountability Office, the Department of Education forgives about $2 billion in loans owed by disabled borrowers every year.
Who can be considered Disabled?
Veterans who cannot work as a result of service-related injuries aren’t the only disabled borrowers who can qualify for federal student loan forgiveness. Anyone who’s receiving disability benefits from the Social Security Administration, or has been certified as “totally and permanently disabled” by a physician, may qualify.
Seniors Social Security Seized to Pay Student Loans:
Issues for older borrowers (age 50 and older) who default on federal student loans and must repay that debt with a portion of their Social Security benefits often have held their loans for decades and had about 15 percent of their Social Security benefit payment withheld.
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
In Case You Missed It
Published On: October 28, 2023
When a debtor is in Chapter 13 bankruptcy, it is not unusual that their monthly payments are made through a plan rather than directly to the mortgage lender. At the end of the year, the mortgage lender is likely to send Form 1098 (mortgage interest paid through the year) to the trustee, not the homeowner.
Published On: September 2, 2023
NEW STUDENT LOAN REPAYMENT PLAN, plus UPDATES (at end of this article) SAVE – “SAVING ON A VALUABLE EDUCATION” “SAVE” – New Student Loan Repayment Plan (8/23) [...]
Published On: July 19, 2023
IMPORTANT PROGRESS FOR STUDENT LOAN BORROWERS WHO HAVE BEEN IN REPAYMENT TWO DECADES OR MORE Posting from the National Consumer Law Center Important Progress for Student Loan Borrowers Reposting from NCLC, July [...]
-
Published On: March 6, 2023
PEOPLE MAY WANT TO FILE A TAX RETURN – EVEN IF THEY ARE NOT REQUIRED TO DO SO Posting from the IRS & Filing Tips IRS Tax Tip 2023-27, March 2, 2023 [...]
