Last week my blog was giving congratulations to my friend Pam for the complete discharge of her Student Loans! My friend Pam in her mid 50’s has three adult children, is divorced, and because of a stroke a few years ago, is unable to work and is living on SSDI on a monthly income of under $700.00!
(last week’s post link: http://www.unduehardship-povertyrequired.com/2018/02/tpd-total-and-permanent-disability.html ).
Pam’s discharge of over $26,000.00 was nothing short of “A MIRACLE”. Pam was granted a Total and Permanent Disability (TPD) discharge of her student loans and interest by the Department of Education on January 19, 2108.
Pam showed me her letter from nelnet (Nelnet assists the Department in administering the TPD discharge process). To summarize the letter: “Effective 01/19/2018, the Department has approved your application for discharge of the federal student loan or TEACH Grant service obligation identified below on the basis of your total and permanent disability. We will notify you again when we have discharged your loan and/or TEACH Grant service obligation.”
In the post of last week, I talked about the 3-year monitoring period nelnet required by each person awarded a TPD discharge to comply with; I went on to discuss what I called “the caveat I disliked” about the TPD discharge — The fact that after the 3-year monitoring period the IRS would potentially require a tax payment on the amount of discharged student loans and interest was what I disliked. In other words my friend Pam would have to file a 1099-C and be subject to income tax on her $26,000.00 discharge!
Within a few days of writing last week’s blog article, I received an email from a site I subscribe to, which provides great information about Student Loan Rights and Responsibilities for Borrowers and Advocates. This organization is called: “The Student Loan Borrower Assistance Project (SLBA) and is a program of the National Consumer Law Center (NCLC). I recommend my readers subscribe to this great source of news about student loan issues, and can provide great help to students.
Here is the link: http://www.studentloanborrowerassistance.org/
“Tax on Death and Disability Discharges Is Gone … For Now”
The 2nd Miracle jumped off the page of this February 8th publication from SLBA! Here is a part of the article that outlines the key information:
“We here at NCLC have been arguing for years and years (and years!) that taxing disability and death discharges is grossly unfair to some of the most vulnerable student loan borrowers.
Finally, after many years of advocacy, this tax has come to an end… for now (more on that later). The tax bill passed at the end of 2017 does away with the tax on student loan discharges for death and disability.” *SEE BELOW
What this means for Pam, my friend — she has been given a second miracle bonus for her January 19th, 2018 Total and Permanent Disability discharge! She will NOT be subject to IRS Tax on her discharged loan and interest.
Let me just say, Pam is very blessed as she falls into a tiny window of eligibility to get this tax relief exception! NOT EVERYONE IS ELIGIBLE! Please continue reading.
*WARNING: Very much like the caveats and rules contained within the parameters of being awarded a full discharge via the TPD, there are specific parameters, rules and qualifications which govern this TAX RELIEF.
NOT EVERYONE QUALIFIES! — YOU MUST READ THE FULL DOCUMENT!
Leave it to the Government to want to make an attempt to help those who are disabled and stuck with student loans they cannot afford — only to make it restricted and not for everyone!
Rather than try and explain it all here, I will just post the article for you all to look at. The article describes who is eligible for this NO TAX “gift” and those who are not. (Summation: Primarily it is based on when the TPD was awarded)
Here is the link to the full article at the SLBA website.
When I learned of this article, I called my friend Pam and shared the good news. I had to do that because I had previously told her she would probably have to pay the Tax to the IRS after the 3-year monitoring period based on what I had known about the consequences of the TPD discharge. As you may imagine, she was quite relieved.
She falls right in the exact window of qualifications set out in this recently passed law or Department of Education policy. My heartbreak is that not ALL who have been awarded a TPD prior to 2018 will qualify and will most likely still owe the IRS.
Here is what is said in the above mentioned article: “borrowers who received these cancellations in 2017, unfortunately, still have to deal with the tax consequences”
To me that seems so unfair! The other thing that seems unfair to me, is that according to the article… “It is important to note that this change in the tax code will expire on December 31, 2025. This means that because of the three-year monitoring period, borrowers who have their initial discharge approved after December 31, 2022 and complete the three years of monitoring could be subject to the tax. The hope is, of course, that this law will be extended or become permanent before then.”
Indeed… It is my hope also that the Department of Education (DOE) makes this a permanent ruling and gives ALL disabled student loan debtors this relief. In fact, I pray that the DOE gets a “conscience” and begins to not only make the TPD award process simpler, but that they take serious steps toward removing the “undue hardship clause” within the U.S. Bankruptcy Code and take it back to the time when student loans were dischargeable just like any other form of personal debt!
I would like to ask you to please comment on this post. I would also like to say that if you are in need of help with your student loan debt I am willing to try and offer you some assistance. I am not an attorney, I cannot give legal advice, but perhaps I can in some way offer you “keys” to dealing with your situation? I have done so for others and as time permits I will offer the same to anyone who finds this blog insightful.
Thanks for reading — be sure to add comments and I will reply as time permits. Please subscribe with your email address and you will be notified of my blog posts. Thank you again, God Bless, Richard P.