What’s new for borrowers with severe disabilities and student debt?
Due to a recent change in federal law, borrowers whose student loans are forgiven on or after Jan. 1, 2018, due to “death or total and permanent disability” no longer have to pay federal income taxes on those forgiven loans.
If a disabled veteran has $20,000 of student loans forgiven, that veteran will no longer be hit with thousands of dollars in additional federal taxes.
Now, when the Department of Education or a private lender forgives a student loan due to a borrower’s death or disability, the amount of forgiven debt no longer counts as income and does not cause a borrower’s federal taxes to go up. Prior to this change some borrowers with disabilities faced financial distress driven by a tax bill because they qualified for debt relief. A Catch-22.
Read more about your rights if you are severly disabled and have student debt here: