{"id":41364,"date":"2017-11-13T12:02:02","date_gmt":"2017-11-13T20:02:02","guid":{"rendered":"http:\/\/world.edu\/?p=41364"},"modified":"2017-11-13T12:02:02","modified_gmt":"2017-11-13T20:02:02","slug":"fix-borrowers-loan-discharges-comes-short-tax-reform","status":"publish","type":"post","link":"https:\/\/world.edu\/fix-borrowers-loan-discharges-comes-short-tax-reform\/","title":{"rendered":"Fix for borrowers with loan discharges comes up short in tax reform"},"content":{"rendered":"

\"\"<\/p>\n

For all the tax reform provisions that will take away benefits from borrowers and colleges, there\u2019s one important addition in the House legislation–excluded from the Senate\u2019s version of tax reform that was published over the weekend–that will help vulnerable students and their families: making student loan discharges due to death or disability nontaxable income.<\/p>\n

Currently, borrowers have the right to have their federal student loans wiped away when they die or are determined to be totally and permanently disabled. But that small relief is short-lived, when the borrower or his family learns that he may owe taxes on the amount that was discharged. For instance, a veteran wounded in Afghanistan recently received forgiveness on his student loan debt — before\u00a0learning<\/a>\u00a0the IRS expected him to pay $62,000 in income taxes on that forgiveness.<\/p>\n

The provision included in the House\u2019s tax reform bill, echoing a bipartisan bill\u00a0introduced<\/a>\u00a0in the Senate earlier this year by Sens. Portman (R-OH), Coons (D-DE), and King (I-ME), would fix that problem, both for federal and private student loans discharged for those reasons–an important resolution to a problem that plagues some of the most vulnerable borrowers. But it begs two questions: Why wouldn\u2019t the Senate follow suit on this provision? And why wouldn\u2019t Congress fix this problem for the other student loans it forgives?<\/p>\n

Specifically, the Department of Education forgives loans for a whole host of other purposes–at the end of 20 or 25 years of payment on an income-driven repayment plan, for borrowers whose colleges lied to them, and in cases where borrowers never should have gotten the loan in the first place. But in all of these cases, borrowers typically owe taxes on the amount of the loan that is discharged, setting them up for a big hit on their taxes if they make use of the options Congress set out in law. While Treasury has made special exceptions in a few limited cases–for instance, for\u00a0Corinthian Colleges<\/a>\u00a0and\u00a0American Career Institute<\/a>\u00a0borrowers who submit and have approved borrower defense claims–on the whole, borrowers are faced with a potentially expensive choice.<\/p>\n

And it\u2019s not hard to imagine how the \u201ctaxable income\u201d catch might cause problems in such cases when you look back at government efforts to make it easier for permanently disabled borrowers to get their loans discharged. In 2015, the Department of Education and the Social Security Administration\u00a0teamed up<\/a>\u00a0to automatically identify borrowers who have already been deemed totally and permanently disabled and therefore qualify to have their loans discharged, too. But the Department couldn\u2019t automatically discharge their loans, because of the tax liability those disabled borrowers would incur. Instead, it had to settle for sending borrowers letters notifying them of their eligibility, suspending their payments for a short time period so they could complete the application, and processing them later. In the first couple of data matches, the federal agencies identified about 400,000 borrowers as potentially eligible. Similar efforts to help borrowers access the benefits for which they\u2019re eligible, including income-driven repayment forgiveness and borrower defense, are also forced to stop short of providing the benefit.<\/p>\n

To date, there aren\u2019t too many borrowers who fall in these categories, given that spikes in income-driven repayment enrollment and claims filed by harmed students looking for a borrower defense discharge are both relatively recent. But there\u2019s a growing pileup of students who may face an unexpected tax liability. For instance, there are well over 70,000 borrower defense claims waiting in limbo at the Education Department right now. And while many of them will pay off their loans rather than qualifying for forgiveness, an unprecedented\u00a06 million<\/a>\u00a0Direct Loan borrowers are enrolled in income-driven repayment plans today. (Check out\u00a0this report<\/a>\u00a0for examples of borrowers\u2019 tax liability after receiving loan forgiveness.)<\/p>\n

At the end of the day, when Congress promises a borrower forgiveness, it should be provided to him–without the added insult to injury of an expensive tax payment. Members of Congress owe it to borrowers–and especially to our veterans–to fulfill those promises they have made.<\/p>\n","protected":false},"excerpt":{"rendered":"

For all the tax reform provisions that will take away benefits from borrowers and colleges, there\u2019s one important addition in the House legislation–excluded from the Senate\u2019s version of tax reform that was published over the weekend–that will help vulnerable students and their families: making student loan discharges due to death or disability nontaxable income. Currently, […]\n… learn more→<\/a><\/p>","protected":false},"author":33,"featured_media":41365,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[29],"tags":[12991],"coauthors":[11733],"class_list":["post-41364","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-higher-education","tag-student-loans"],"acf":[],"yoast_head":"\nFix for borrowers with loan discharges comes up short in tax reform - World leading higher education information and services<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/world.edu\/fix-borrowers-loan-discharges-comes-short-tax-reform\/\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:locale\" content=\"en_US\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:type\" content=\"article\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:title\" content=\"Fix for borrowers with loan discharges comes up short in tax reform - World leading higher education information and services\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:description\" content=\"For all the tax reform provisions that will take away benefits from borrowers and colleges, there\u2019s one important addition in the House legislation–excluded from the Senate\u2019s version of tax reform that was published over the weekend–that will help vulnerable students and their families: making student loan discharges due to death or disability nontaxable income. 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