Tax Free Death And Disability Student Loan Discharge
That means if you were to get $50,000 in student loans forgiven, it is considered income. If you made $35,000 working, your total income for the year would now be $85,000. The result? A higher tax bill. Borrowers could see their tax bills rise by $10,000 or more!
To make matters worse, if you’re getting your loans discharged due to total and permanent disability, this “income” could disqualify you from aid programs that you might rely on.
However, Trump tax plan, known as the Tax Cuts and Jobs Act, eliminated the taxability of student loan discharge on people who get it for Death or Total and Permanent Disability. That means, if you are getting student loans discharged on death or disability, you no longer will face a tax burden (or your family won’t).
It’s important to note that this provision only went into effect on January 1, 2018 – and so any loans discharged in 2017 will still face taxes. Furthermore, this provision is set to expire in 2025 unless Congress renews it.
Note: On August 21, 2019, Trump directed both the Secretary of Education and Secretary of Veterans Affairs to find a way to make this automated for veterans who qualify. That would be a huge win for the 50,000 or so veterans who should get their loans forgiven.