Delaware

Del. lawmaker helps in passing of the Stop Taxing Death and Disability Act

WASHINGTON, D.C. - Changes have been made to the existing list of tax-exempt student loan cancellations, after a local lawmaker says a new law will not tax student loans canceled as a result of death or permanent disability as income.

The Office of United States Senator Chris Coons (D-Del.) says on Tuesday, the Stop Taxing Death and Disabilities Act will eliminate the tax penalty on student loans that are forgiven due to death or permanent disability. The bill was apparently introduced by Senator Chris Coons (D-Del. ), Senator Angus King (I-Maine), and Senator Rob Portman (R-Ohio) in late December and signed into law just before the new year.

Although certain federal student loans were forgiven due to death or disability of the student, the Internal Revenue Service (IRS) treated canceled debt as income which could result thousands of dollars in tax liability before the passing of the new law. Lawmakers say the tax on canceled loans is not only an unnecessary tax, but it also prevents the Department of Education from streamlining the loan forgiveness process. 

Under the Stop Taxing Death and Disability Act federal and private student loans that are canceled due to the death of a child or total and permanent disability are exempt from income tax. Officials say . under Section 108(f) of the Internal Revenue Code, public sector employees, including teachers, public defenders and librarians, who meet length of service requirements, are exempt from paying income tax on discharged loans. The Higher Education Act also provides for the tax-exempt forgiveness of student loans due to the closure of a borrower's school. This bill simply adds federal and private student loan discharges as a result of death or total and permanent disability to the existing list of tax-exempt discharges.

In a statement, U. S. Senator Coons says, "I'm pleased that the bipartisan Stop Taxing Death and Disability Act was enacted into law. Taxing Americans who are grieving the death of a child or adjusting to a life-changing permanent disability is simply unconscionable. We forgive these student loans because that's the right thing to do as a country.  Requiring these Americans to pay a surprise tax on student loan forgiveness serves no public policy purpose whatsoever."


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