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Even in Death, Student Loans, the Debt That Keeps on Giving

The unfolding tragedy of student loan debt in America took an interesting turn recently with an article published in the Baltimore Sun and then repeated in the ABA Journal. Thanks to a reader that sent in the tip on the article we get a glimpse into reason 198 why you should never cosign for student loans.

Roswell Friend attended Temple University and had $55,400 in Parent Plus loans that his mother had lovingly signed for to help him with his education. Regina’s son committed suicide in August of 2011. After his death his student loans were forgiven.

But because the loans were forgiven, the dreaded old 1099 form sent to the IRS appeared. The 1099 form is issued to report forgiven debts and if solvent, people need to pay income tax on the forgiven debt as if it was regular income.

Roswell Friend was a popular figure on Temple’s campus and ran track for the school. He disappeared late on a Thursday night and was last seen on surveillance cameras running onto a bridge. The next Monday morning, police found his body on the New Jersey bank of the Delaware River.

He had finished enough classes to graduate, and in May his mother collected a diploma on his behalf.

For Friend, having to pay a monthly tax bill will be more than just a financial burden.

“That’s just going to be every month I have to make a payment that’s just one more reminder of my son,” she said. “Not that that’s necessarily a bad thing — it’s just a reminder that he’s no longer with us.” – Source

The financial pain Regina Friend is feeling is not imposed by the government loans she signed for in this case. No, in this case it is an IRS regulation that is piling on the debt for a mothers dead sons loans.

Friend’s tax preparer is outraged and shocked, I guess he doesn’t deal with many forgiven debt situations. He has asked the IRS for an extension to file while he hunts for a solution to this problem. Yea, good luck with that.

Ultimately this story is one that typifies the Internal Revenue Service regulation that income tax must be paid on forgiven debt unless you are insolvent.

What do you think, is that IRS regulation a fair one and would you be willing to eliminate the taxes collected on forgiven debt?

The U.S. Department of Education reported in 2011 $2.7 billion in student loans was forgiven. That figure doesn’t even include private student loans which have attempted collection on the parents of dead student, when the parents cosigned.

Don’t you just hate student loans? I know I do.


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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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