Disability student loan forgiveness is now easier and cheaper

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  • From September, student loans will be forgiven for 323,000 people with disabilities.
  • Eligible borrowers will be identified through Social Security and Veterans Affairs databases.
  • Remaining forgiven debt will not be taxed by the IRS but may be taxed in the states.
  • Learn more about personal finance coverage.

The often cumbersome application process for student loan forgiveness due to disability is coming to an end.

On August 19, the U.S. Department of Education announced that federal student loans to more than 323,000 borrowers with complete and permanent disability will automatically forgiven starting in September. This step is one of the last in series of steps The Biden administration has taken steps to reduce the financial burden on student borrowers.

“We have heard clearly and clearly from borrowers with disabilities and advocates about the need for this change, and we are very pleased to make it happen,” US Education Secretary Miguel Cardona said in a statement. Press release. “This change reduces red tape to make it as easy as possible for borrowers who need support.”

Here’s how the latest update for student loan forgiveness makes the process easier and cheaper.

For most borrowers with disabilities, there is no longer an app

In the past, most of the borrowers with disabilities seeking forgiveness for a student loan, also known as debt repayment, were required to apply and provide proof of their disability and income.

Starting in September and continuing on a quarterly basis, the Department of Education will check its database with the Social Security Administration (SSA) to identify borrowers who are fully and permanently disabled (TPD). He has already been carrying out this process with the Department of Veterans Affairs (VA) since 2019. Borrowers identified as TPDs will automatically have federal student debt written off. If this is you, expect a letter from the Ministry of Education confirming the loan forgiveness sometime in the fall.

Debt forgiveness applies to the following types of loans: Federal Direct Loan Program (Direct Loan), Federal Family Education Loan (FFEL) Loan, and Perkins Federal Loan (Perkins Loan). It also exempts borrowers with disabilities from fulfilling the TEACH Grant obligation.

Borrowers who are not listed in VA or SSA databases and are still asking for forgiveness on student loan need to apply and provide a doctor’s certificate of disability.

Written off balances will not be taxed by the IRS.

Thanks to the tax measure included in the March 2021 incentive package, student loans forgiven before January 1, 2026 are now tax-free. Previously, they were included in the taxable income of the borrower, which often resulted in large unexpected tax bills, which was a particular burden for disabled people with a fixed income.

Unfortunately when it comes to state income tax, the rules are darker. In accordance with College investorThere are 31 states that either do not tax income or comply with federal regulations, so written off student loan balances will not be taxed there. There are 19 states left where taxation is possible.

Visit your state tax office website for more information about taxation and whether you need to report a forgiveness on your state tax return.

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