Anti Federalist
03-27-2014, 08:33 PM
Disabled Borrowers Trade Loan Debt for a Tax Bill From the I.R.S.
http://www.nytimes.com/2014/03/28/your-money/disabled-borrowers-trade-loan-debt-for-a-tax-bill-from-the-irs.html?hpw&rref=business&_r=0
Six months after his wife learned that she had a rare vascular disease of the brain, Frank, now 66, lost his job as director of sales of a telecommunications company. His wife, to whom he had been married for 36 years, died just two months later.
He was still grieving when he learned that he had kidney cancer. The tumor was operable, but the exam brought to light a long list of other serious problems, including a pulmonary embolism and a heart-rhythm disorder.
That was in 2009, in the depths of the recession, and finding a new job was difficult. Two years later, after struggling to pay medical bills not covered by insurance and other debts, Frank filed for bankruptcy. But that did not erase the giant pile of federal Parent Plus loans that he had taken out to help put his three children through college. Since he could no longer work, Sallie Mae, the loan servicer, ultimately suggested applying for a disability discharge, which would cancel the debts.
He qualified, and last July, his loans, which had ballooned to $150,000 in forbearance, were wiped away. “I felt like a Buick had been lifted off my shoulders,” said Frank, who lives in upstate New York.
But much to his surprise, he received another bill. In January, the Internal Revenue Service sent him a tax form, known as a 1099-C, which said that the loan amount had to be treated as income. According to his calculations on TurboTax, his tax bill for this year is about $59,000.
“If I am not capable to work due to a medical disability to pay the student loan, how am I supposed to work to pay the taxes?” said Frank, who agreed to discuss his situation only if his full name was not published. “Now I am somewhat panicked.”
After much criticism, the Department of Education has made it easier in recent years for disabled borrowers to have their federal student loans discharged. But now, as more people are qualifying for loan forgiveness, many of them are running into an unexpected consequence: They are often shocked to learn that they basically exchanged one debt for another, according to consumer advocates and tax and credit specialists.
While millions of debts — including credit cards and mortgages — are canceled each year, the group of borrowers whose loans have been discharged because of a “total and permanent disability” has grown sharply to more than 115,700 in 2013, from nearly 61,600 in 2011 and fewer than 15,000 in 2008, according to the Department of Education. But under current tax law, the amount of debt forgiven is generally taxable, so some disabled borrowers end up with tax bills they cannot afford.
http://www.nytimes.com/2014/03/28/your-money/disabled-borrowers-trade-loan-debt-for-a-tax-bill-from-the-irs.html?hpw&rref=business&_r=0
Six months after his wife learned that she had a rare vascular disease of the brain, Frank, now 66, lost his job as director of sales of a telecommunications company. His wife, to whom he had been married for 36 years, died just two months later.
He was still grieving when he learned that he had kidney cancer. The tumor was operable, but the exam brought to light a long list of other serious problems, including a pulmonary embolism and a heart-rhythm disorder.
That was in 2009, in the depths of the recession, and finding a new job was difficult. Two years later, after struggling to pay medical bills not covered by insurance and other debts, Frank filed for bankruptcy. But that did not erase the giant pile of federal Parent Plus loans that he had taken out to help put his three children through college. Since he could no longer work, Sallie Mae, the loan servicer, ultimately suggested applying for a disability discharge, which would cancel the debts.
He qualified, and last July, his loans, which had ballooned to $150,000 in forbearance, were wiped away. “I felt like a Buick had been lifted off my shoulders,” said Frank, who lives in upstate New York.
But much to his surprise, he received another bill. In January, the Internal Revenue Service sent him a tax form, known as a 1099-C, which said that the loan amount had to be treated as income. According to his calculations on TurboTax, his tax bill for this year is about $59,000.
“If I am not capable to work due to a medical disability to pay the student loan, how am I supposed to work to pay the taxes?” said Frank, who agreed to discuss his situation only if his full name was not published. “Now I am somewhat panicked.”
After much criticism, the Department of Education has made it easier in recent years for disabled borrowers to have their federal student loans discharged. But now, as more people are qualifying for loan forgiveness, many of them are running into an unexpected consequence: They are often shocked to learn that they basically exchanged one debt for another, according to consumer advocates and tax and credit specialists.
While millions of debts — including credit cards and mortgages — are canceled each year, the group of borrowers whose loans have been discharged because of a “total and permanent disability” has grown sharply to more than 115,700 in 2013, from nearly 61,600 in 2011 and fewer than 15,000 in 2008, according to the Department of Education. But under current tax law, the amount of debt forgiven is generally taxable, so some disabled borrowers end up with tax bills they cannot afford.