Tax on Death and Disability Discharges is Gone … For Now
This post originally appeared on studentloanborrowerassistance.org
By: Persis Yu | February 8, 2018
Student loan borrowers who apply to have their loans canceled due to their disability or the death of their child can worry about one less thing: possible tax consequences.
When a borrower dies or becomes permanently disabled before paying off student loans, the loans can be discharged, relieving the disabled borrower or surviving family members of the burden of paying off loans they often cannot afford. Parent PLUS loan borrowers are also eligible for the death discharge if the student for whom the PLUS loan was taken out dies. These discharge programs provide important relief to borrowers dealing with difficult circumstances. But the programs have come with a big catch: the possibility of a very large tax bill.
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.
This is generally good news for borrowers. But there are some complications for borrowers whose loans were already discharged or approved for discharge prior to 2018.