If a student loan borrower develops a total and permanent disability (TPD), the federal government will now forgive the borrower’s federal student loans. The Department of Education has already identified over 300,000 Americans who are eligible for student loan forgiveness, and has begun to notify these borrowers on how to apply for discharge of their student debt. These notices warn that discharge of debt may lead to adverse tax consequences.
The IRS generally treats forgiveness of student loans as income. For some, this could affect their eligibility for Medicaid, how much they pay for health insurance bought through the health care exchanges, and eligibility for other public benefits programs.
Currently, there is a bipartisan bill in Congress that would eliminate this tax on forgiven income for persons with total and permanent disabilities (TPD). The President’s 2017 budget proposal also seeks to exclude TPD discharges and other Department of Education loan forgiveness programs.
For more information on TPD student loan debt discharges, please visit the Federal Student Aid websites
https://www.disabilitydischarge.com/ and https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/disability-discharge.
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