President Trump Changes Student Loan Death and Disability Discharge Tax Rules

Student debt has the possibility of hanging over a person for years to come, and if the unfortunate circumstance emerge that the student debt is discharged due to disability, the discharge is then considered to be income for tax purposes. Those that are disabled already have a problem paying their bill (hence the discharge), so an added tax bill added more stress.

Many of President Trump’s recent student debt proposals have borrowers a bit worried, but the change in the tax law that occurred under the Tax Cuts and Job Act (TCJA) actually had a great positive affect of student loan borrowers. If a person is able to fulfill the requirements for disability status, the discharge of the student debt will no longer be taxable income.

For a parent that has the tragic situation of borrowing a loan for their child and then having their child pass away, prior to the tax reform, they would have been liable for the tax of the debt discharge. The new law now allows all death discharges to be tax-free as well.

See Robert Farrington, President Trump Changes Student Loan Death and Disability Discharge Tax Rules, Forbes, September 4, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.