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Hi all. I am working with a client who has early onset Parkinsons, has had it for 14 years. She receives SSI for the disability. She applied for her student loans to be discharged in 2015. They were supposedly discharged, and she paid taxes on the loan amount, but because she didn’t file some form every year, they were undischarged a couple of years later. She says if she’d gotten to 3 years, she’d be done with them. Anyway, the student loans are back on, with interest accruing. (So much for forgiveness!!!) We are working to get them re-discharged. Has anyone had any kind of experience with this??? Is there any recourse for her, or does she have to go back to Go and wait another three years to finally get the monkey off her back?
Yes, I have been through almost this exact scenario. They started to garnish my client’s SSI check for the student loan after he forgot to send the papers back in after the initial paperwork was completed (he has a brain injury). We had to start over on the three years. I have it in my calendar each year to make sure that we get it submitted. We just sent the papers back in for year 2. One more to go. In the meantime though, the account was put on hold so there is no obligation to make payments. After you finish the three years, it goes from being suspended to discharged permanently. Make sure this is what they are doing on your client’s account. The interest won’t matter once it is permanently discharged.
On the taxes, I would look into that because per studentaid.gov at a federal level, the loan isn’t considered discharged until after the 3 years and since she never met the three years, she would fall into the window where it is not federally taxable. From Studentaid.gov:
If my loan is discharged due to TPD, do I have to pay taxes on the discharged loan amount?
Because of a change in federal law related to the taxability of loan amounts discharged due to TPD, the answer depends on when you received the discharge.If you received a TPD discharge of a loan before Jan. 1, 2018, the loan amount discharged may be considered income for federal tax purposes under Internal Revenue Service (IRS) rules.
If you received a TPD discharge of a loan during the period from Jan. 1, 2018 to Dec. 31, 2025, the discharged loan amount won’t be considered income for federal tax purposes.
For purposes of determining whether a loan amount discharged due to TPD may be treated as taxable income for federal tax purposes, the date you are considered to have received the discharge is different depending on how you qualified for the discharge.If you’re a veteran who showed that you’re totally and permanently disabled based on a disability determination by the VA, you’re considered to have received the discharge for federal tax purposes on the date we approve the discharge.
If you showed that you’re totally and permanently disabled based on documentation from the SSA or a physician’s certification (meaning that you’re subject to a three-year postdischarge monitoring period), you’re considered to have received the discharge for federal tax purposes at the end of the postdischarge monitoring period. For example, if your discharge was approved in July 2017, you would not be considered to have received the discharge for federal tax purposes until July 2020, at the end of the three-year postdischarge monitoring period. Therefore, the IRS would not consider the discharged loan amount to be taxable income for federal tax purposes.
Loan amounts discharged due to TPD may still be considered income for state tax purposes. If you receive a TPD discharge of a federal student loan, you may want to consult with your state tax office or a tax professional before you file your state tax return.
Thank you, Caitlin, this is very helpful info. But how they can expect someone with a brain injury to be on top of this is beyond me!
msMy feelings exactly. This client doesn’t even remember to open mail so I have the notice sent directly to me each year so I can make sure it is completed and returned.
I don’t, but would recommend talking to an Enrolled Agent (EA). They represent clients before the IRS and would know the most about it and be able to help.
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