Good news has arrived to disable veterans seeking student loan forgiveness. Last week President Trump signed an executive order to cancel all wounded warrior’s student loans averaging almost $30,000 in debt per veteran.
Total and Permanent Disability (TPD) Discharge.
While the Total and Permanent Disability (TPD) Discharge program isn’t new this order makes qualifying veterans automatically have their student loans forgiven. The reason why the new executive order was put into effect is due to the difficulties veterans had when applying for student loan forgiveness this order seeks to expedite the process.
With almost 44,000 veterans with student loan debt, only 9,000 were able to apply making approximately half of those 44,000 go into default.
Veterans will begin to receive notifications about their eligibility. Keep in mind that you may have to pay taxes on the canceled debt and you will have 60 days to opt-out. Veteran may want to opt-out due to tax liability or because it will make it more difficult to get a student loan in the future.
No Tax Bill
The good news with Trump executive order, disable veteran will not have to pay any federal income taxes on discharged student loan debt. President Trump also is urging states to absolve those veterans who receive student loan discharge of state income taxes.
Other Student Loan Forgiveness Options
We have found that many people who are permanently disabled prefer not to discharge the loans due to the tax bill they will receive, and instead enter into the William D. Ford Direct Loan program. When you consolidate your loans into this program, you are able to choose an income-based repayment(IBR) plan that can benefit you in these ways:
- The income-based repayment(IBR) plan will give you a monthly payment based on your income and not loan size. For those who are disabled and not working, this can typically be a payment of $0.00 per month. So rather than discharging the loan and receiving a tax bill, you receive a $0.00 payment for 25 years assuming you will not be working during these years.
- The Direct Loan and IBR program offers loan forgiveness after the 25-year term. So entering into this will also provide forgiveness on your student loans, but will delay the tax bill for many years.
The issue to consider is that the IBR program recalculates your payment annually. This means if you start working and have a considerable income, you will have a monthly payment to make that will be based on your income. You would also be required on an annual basis to reapply for the IBR program and submit your income documents, or self certifies that you are not working and have no taxable income.
You Are Not Alone
You can decide to talk to a financial advisor to help you understand and identify which route you can take to tackle your student loan battle.