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New Rules for Student Loan Disability Discharge?

Discussion in 'Finances, Work, and Disability' started by Ema, Aug 27, 2012.

  1. Ema

    Ema Senior Member

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    Midwest USA


    Full text here:
    http://www.washingtonmonthly.com/college_guide/blog/department_of_education_propos.php
     
    Sushi, jeffrez and CJB like this.
  2. ggingues

    ggingues $10 gift code at iHerb GAS343 of $40

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    Concord, NH
    Huh, doesn't sound very helpful. Wish I could use the program (although I think I only have about 3 years left to repay), although I work part-time, and not sure what it would take to be considered disabled. My employer recognizes that I have a medical disability.

    GG
     
  3. Michelle

    Michelle Decennial ME/CFS patient

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    Portland, OR
    I've been meaning to do a follow-up to my post in a thread from -- egads! 5 years ago now -- regarding the possibility of getting student loans forgiven with a CFS diagnosis. It appears that the changes to the rules in 2012 have indeed made it easier to obtain loan forgiveness for permanent disability. My GP and I filled out the application late last summer in the most basic of ways. She listed only Chronic Fatigue Syndrome as my disabling condition (I also have multiple co-morbid conditions like Ehlers-Danlos, FMS, etc.), that I could only walk 500 steps or less/a day (I wear a pedometer for pacing) and leave the house less than 1x/month (the way she wrote it with a < sign made it actually look like 4x/month but I didn't bother fussing about that as I figured that's still too disabled to work), and that I've been on SSI since 2001. After I mailed it in, I found the loan discharge material I'd been sent in 2011 which said to list all disabling conditions, meds, treatments attempted, etc. so I figured my application would be turned down. Lo and behold, a few months later I was notified that my loans were being preliminarily discharged. Or, at least half of them. I'm still waiting to hear on the other half (not sure if they got lost on someone's desk or something... ;-) ). They will watch for the next three years to see if the magic health fairy makes me capable of earning income equal to the federal poverty level for two, regardless of how big or small my household is; if I do, loan payments will resume.

    The main change seems to be that the primary metric they use to decide eligibility (aside from substantial gainful activity) is how long you have been or will be disabled. If it is 5 years or more, you will have a much easier time. I have been unable to work since 2001 and unable to go to school since 2005, so I more than met the 5 year criteria.

    BUT...and this is IMPORTANT if you own any assets including a home, the IRS considers forgiven debt to be a form of income. When your loans go into preliminary discharge, you will receive a form 1099-C showing the amount of cancelled debt. You are then required to file a tax return noting this income and if you have assets such as/including a home, you may be required to pay taxes on that cancelled debt. If you are like me and have no assets (no car, no house), you are considered to be insolvent and will thus have no tax bill to pay (though I'm madly trying to work through to specifics of what to note where on the the tax return atm...). Please consult a tax professional if you do own assets such as a house because you could be trading one debt for another. :-(
     
    ahimsa, L'engle, Snow Leopard and 4 others like this.

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