The new proposed policy is found on the federal registry and is open for comments. Several issues are not addressed that are critically important due to the unintended consequences of these proposed rules that apparently have not been considered:
Where to make comments which ends 5/17/24
https://www.regulations.gov/commenton/ED-2023-OPE-0123-26398
Do not copy/paste anything I write or the federal registry will not consider your or my comments.
The proposed policies do not address making the pause on loan forgiveness permanent. It ends 12/31/2025. After that you will get a 1099-C again unless forgiven through the public service, teach or VA (not the other two ways to get disability) disability programs.
The 1099-C is considered ordinary income which means you will pay federal tax, in 10 states you will pay state taxes, HUD/section 8 considers if for rent (and if it makes your income too high you will lose your lease in HUD or lose you section 8 voucher), SNAP, TANF, medicare B and D premiums. It looks like Medicaid is exempt.
They need to make the pause permanent - or at least permanent if you are under a certain income level (adjusted yearly for inflation) for family size. If you have your loans discharged because you couldn’t afford to pay them off over the required payment period how can you afford these consequences?
There is a second problem for those on the 3 year monitoring period for disability discharge before their loans are actually discharged:
- It appears they won’t be included in the adjustments that are being made to totals (eg for capitalized interest, paying - including counting as if you paid while in deferment, etc) and so the total written off will be higher than it would otherwise be.
- If the 3 years is up after 12/31/2025 then they get a 1099-C and won’t have those adjustments everyone else gets.
It may be that to prevent getting a 1099-C starting in 2026 it may take a law (the current pause was included in the pandemic law) but it also needs to be included in the policy in case the IRS and/or other federal agencies (department of housing, Medicare, etc.) are required to honor Dept of Ed policies (I don’t know if they are, the IRS is NOT required to honor lawsuits they lose about taxes).
If you do not pay the taxes, without going to court the IRS can garnish your income and social security. You can set up a payment plan but you will pay interest and a monthly penalty.
Incidentally because the debt is considered “ordinary income” insolvency won’t work to be exempt from taxes owed the way that can be if you get rid of them via bankruptcy with an adversarial proceeding.
PLEASE GO TO THE WEBSITES I POSTED AND READ THE PROPOSED RULES AND THEN MAKE A COMMENT (you can get to that either via my second link or via the comment link on the page with the rules). The more comments that address the same issues the more likely they are to listen to what we are saying. Again don’t copy/paste. Write it in your own words or their bot will remove the comments that are copy/paste.
COMMENTS MUST BE MADE BY 5/17/2024 as then comments are shut and the rules will be finalized with no opportunity to change them.