Home > Student Loans > How New Government Policies Impact Student Loans

Comments 0 Comments
Advertiser Disclosure


Did you know that about 44 million Americans owe more than $1.5 trillion in student loans? Student loans are by far some of the most widespread types of loans that plague people into their adult life. For the most part, people struggle to pay these loans off for their entire adult existence. It is no wonder that so many people allow these loans to default – it seems hopeless to get them paid off.

One way to get student loans forgiven was to claim that the school you attended defrauded you in some way or had some sort of academic misconduct. To date, more than 160,000 people have used this method to get their student loans forgiven. These claims almost always affect for-profit schools that stand more than 7,000 strong in the country.

The Changes the Government is Making to the Student Loan Discharge Taxes

One such proposal to change student loans seeks to clamp down on the number of loan forgiveness avenues starting with the one that over 160,000 people have used so far: those who have been defrauded by their schools.

While this proposal elicited strong criticism from all corners with some people claiming that the government does not care about the welfare of students, there are even more changes that were proposed. Some quite favorable!

Changes in Student Loan Death and Disability Discharge Tax Rules

The government has made a myriad of changes to federal tax laws, but for about 44 million Americans with student loans, it is the changes that took effect on January 1, 2018, that matter the most. As things stand, it is now much easier for those who are eligible to discharge their student loans.

Death and Permanent Disability Student Loan Discharges No Longer Taxable

Thanks to new government policy, student debt discharged due to total and permanent disability or death is no longer considered income and therefore not taxable.

While this is definitely good news, it is important to note that this law is not retroactive and those who were awarded total and permanent disability student loan discharge in 2017 or earlier will still have to pay those taxes. This law only covers those who get awarded this discharge as of January 1, 2018, to December 31, 2025 (that is when the bill expires although Congress can renew it if they see fit).

Why are These Changes Important?

Those who are not very familiar with loan discharge may not realize or even appreciate just how important these changes are to people with student loans. Before these changes were made, one of the biggest hurdles to anyone wishing to get their loan discharged, even for legitimate reasons, was the fact that the discharge came with a hefty tax burden.

So much so that a vast majority of people opted to stay away from seeking their student loan discharge despite being eligible for the same. Under these new changes, that tax burden is now gone, and more people who are eligible and deserving can now seek student loan discharge.

What are the Benefits of the New Tax Law Changes to “Total & Permanent Disability Discharge?

Apart from the obvious benefit of saving people money when it comes to taxes associated with the discharge, the new tax law changes have a myriad of other benefits to those are eligible for TPD discharge. These include:

  • It offers them financial security: People can now hold on to the money they would have used to pay off the discharge taxes and use it for other things such as medical bills, put it in their savings or even have it as a buffer against tough financial times. It is good to know that this money will be in your account when you need it as opposed to with the Federal Government where you can’t touch it.
  • Your income does not have to be inflated anymore: Before these changes came about, most student loan holds had inflated income reports just because they received some money through their student loan discharge. This inflated income sometimes disqualified people who needed it from important programs such as Medicaid and SSI. Thanks to these new changes, people no longer have to choose between discharging their student loans debts, monthly living stipend or health insurance. They can simply have it all.
  • People no longer have to prolong their loan forgiveness: Before these changes came about, people chose to prolong their loan forgiveness despite being eligible because they did not want to shoulder the heavy financial burden the taxes associated with the discharge would impose on them. With this new law, anyone who is eligible can now pursue total student loan discharge as opposed to choosing an income-based repayment plan that requires monthly repayments and a pile of annual paperwork just to report this income.
  • They can pay off other loans now: With the money saved, people can now pay off other loans and build up their credit which could lead to a better economic standing especially for those under TPD discharge.

While the new tax law applies to both federal and private student loans as well, it is important to note that many private lenders do not offer the option to discharge the student loan due to total and permanent disability reasons. However, if you took out a loan with lending institutions such as: New York Higher Education Services Corp, Wells Fargo, Sallie Mae, or Discover, you can be eligible for a TPD discharge. If you want to know whether or not you are eligible for TPD discharge, visit the Federal Student Aid’s website to find out.

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team