February 28, 2018
WASHINGTON, D.C. – U.S. Senators Angus King (I-Maine), Rob Portman (R-Ohio), and Chris Coons (D-Del.) last week wrote to U.S. Secretary of Education Betsy DeVos, U.S. Secretary of Veterans Affairs David Shulkin, and Acting Commissioner of Social Security Nancy Berryhill urging them to immediately discharge outstanding federal student loans for totally and permanently disabled Americans, including veterans.
“Under the recently enacted Tax Cuts and Jobs Act (H.R. 1), federal student loans that are discharged by the Department of Education due to the death or total and permanent disability of a borrower or the death of a borrower’s child are no longer required to be included in the gross income of the borrower,” the Senators wrote. “Loan forgiveness in these cases is tax exempt. Now that Congress has removed the potential tax consequence associated with loan forgiveness, the Department should immediately begin discharging student loans for eligible individuals.”
Last year, Senators King, Portman, and Coons reintroduced the Stop Taxing Death and Disability Act to eliminate a tax penalty levied on student loans forgiven for families after the death of their child and for Americans who develop permanent disabilities. That bill language was included in and passed as part of H.R.1, the Tax Cuts and Jobs Act. Following the passage of the tax cut legislation in December, the Senators also introduced Domenic’s Law to amend the Higher Education Act to allow a parent whose child develops a total and permanent disability to qualify for student loan discharge. Domenic’s Law was originally part of the Senators’ Stop Taxing Death and Disability Act, which was included within both the House and Senate versions of the Tax Cuts & Jobs Act. The Stop Taxing Death and Disability Act would both amend the Higher Education Act to provide student loan forgiveness to parents who take out loans for their children and also change the Internal Revenue Code to exempt individuals from the tax liability created by the forgiveness of their student loans in cases of death and disability. However, the language pertaining to student loan discharge for parents was taken out of the Tax Cuts & Jobs Act because amending the Higher Education Act was not permitted under the reconciliation rules.
Senator King’s interest in this issue was spurred in part by the outreach of Donald and Nora Brennen, Topsham residents whose son Keegan passed away unexpectedly in 2012 from a non-traumatic brain aneurysm. Keegan had recently graduated from the New Hampshire Institute of Art and had used federal and private student loans to finance his education. While both the federal government and the private lender forgave the outstanding balances on Keegan’s loans, the IRS notified the Brennens that the federal tax code treats this forgiven debt as taxable income and presented them with a $24,500 tax bill. Mirroring the federal code, Maine state tax law also treated the loans as income and required a payment of $6,300. These notices presented a devastating financial blow to the Brennen family, who have since had to dip into their 401(k) to help pay the bill. The Brennens are now on a payment plan with the IRS, sending over $400 per month in tax payments to the agency. While the newly enacted law will not change the loan forgiveness for the Brennens, it will support families with a similar situation moving forward.
In addition to King, Coons, and Portman, the letter was also signed by U.S. Senators Susan Collins (R-Maine), Tammy Duckworth (D-Ill.), and Cory Gardner (R-Colo.), along with U.S. Representatives Ron Kind (D-Wis.) and Peter Roskam (R-Ill.).
The letter is available below and can be read in full HERE.
Dear Secretary DeVos, Secretary Shulkin, and Acting Commissioner Berryhill,
We write to urge the Department of Education to immediately discharge outstanding federal student loans for totally and permanently disabled Americans, including veterans.
Under the Higher Education Act of 1965, individuals who develop total and permanent disabilities are eligible to have their outstanding federal student loans forgiven. However, until recently, loan discharges were required to be included in the gross income of a borrower, which could possibly result in significant income tax liability. This potential tax liability has prevented the Department of Education from automatically discharging loans for individuals that meet the eligibility criteria for loan forgiveness.
Under the recently enacted Tax Cuts and Jobs Act (H.R. 1), federal student loans that are discharged by the Department of Education due to the death or total and permanent disability of a borrower or the death of a borrower’s child are no longer required to be included in the gross income of the borrower. Loan forgiveness in these cases is tax exempt. Now that Congress has removed the potential tax consequence associated with loan forgiveness, the Department should immediately begin discharging student loans for eligible individuals.
Moving quickly in discharging these student loans is especially important given that the Department of Education is well aware of a significant number of Americans who qualify but have yet to receive loan forgiveness. In 2016, the Department of Education and Social Security Administration identified approximately 387,000 borrowers who were eligible for loan forgiveness due to total and permanent disability but had yet to receive it. These borrowers are collectively still making payments on over $7 billion in outstanding student loans for which they are currently eligible to discharge. These Americans should no longer face costly delays or bureaucratic barriers to receiving a benefit that they are entitled to under law.
We also strongly encourage the Departments of Education and Veterans Affairs to prioritize a data match to identify veterans with service-connected disabilities who may be eligible for discharge of federal student loans. Senators Coons, Portman, and King previously sent the Departments a letter in 2016, which is enclosed, requesting a data match. We are disappointed to learn that the data match has not occurred. Veterans who have served our country with honor and sustained a debilitating service-connected disability are still facing the burden of payments on debt that is eligible to be forgiven. Delaying benefits owed to our veterans due to a lack of coordination among federal agencies is unacceptable. We strongly urge the Departments to take immediate action to conduct a data match and subsequently discharge outstanding federal student loans for all eligible veterans.
We appreciate your attention to this important matter and look forward to receiving an update from you on the steps your Departments are taking to immediately prioritize and address this issue.