NCD Letter to Treasury Regarding Tax Debt of Discharged Loans of Borrowers with Disabilities

December 27, 2016

The Honorable Jack Lew
Secretary
U.S. Dept. of the Treasury

The Honorable John Koskinen
Commissioner
Internal Revenue Service

Dear Secretary Lew and IRS Commissioner Koskinen,

I write on behalf of the National Council on Disability (NCD), an independent federal agency that provides advice and recommendations regarding disability policy to the President, Congress, and other federal agencies to request that the Internal Revenue Service (IRS) issue guidance clarifying the exclusion of tax debt for those borrowers with disabilities who meet eligibility requirements to have their loans discharged under the Total and Permanent (TPD) program; and for a meeting on the same.

The Council recently heard from interested stakeholders that borrowers with disabilities who discharge their loans under the TPD program sometimes face a daunting tax debt because the discharge is treated by the IRS as income. Additionally, even borrowers who do not incur a tax liability as a result of having utilized this program may be obliged to file a tax return even if their income is so low that they would not have been required to do so otherwise, and they may face penalties and fines if they fail to do so. Such a tax debt can seriously impact credit which can make it difficult to secure housing, transportation and other necessities.

It is unfortunate whenever a person with a disability, after working hard to obtain an education, must abandon subsequent employment years later, or simply their effort to gain employment on account of his or her disability after he or she has already borrowed to pursue an education. Further, often times, individuals with disabilities have to pay for items that borrowers without disabilities do not. These include expensive assistive technology, specialized household and personal care items, and other accommodations in order to live independently. Penalizing individuals who are already economically disadvantaged and who may be ill-equipped to complete the complicated paperwork and tax forms simply makes an already difficult situation more untenable. Individuals who are eligible for this program are usually insolvent and very low income; the Federal Government is unlikely to recover any significant amount of money and will likely spend more on administrative costs than it will collect from this economically disadvantaged population.

Pursuant to its statutory authority to issue guidance, NCD requests that the IRS issue guidance that would clarify that individuals who have used the TPD discharge process are eligible as a class for an exclusion based on the known insolvency of this group. Such guidance would help individuals who have been determined to be totally and permanently disabled and unable to repay their student loans, but it would also alleviate the administrative burden on the IRS and the Department of Education.

As we look forward to the reauthorization of the Higher Education Act in the next Congress, it should be remembered that policies such as the TPD discharge are available to a limited group of borrowers to help ensure a modicum of economic stability for a population that struggles with poverty and lacks many of the economic opportunities to which others have easier access.

We request a meeting with the IRS to engage in further dialogue on this topic and to discuss any countervailing policy considerations the IRS may have.

Thank you for your time and consideration of this issue. Please contact Amged M. Soliman, NCD Attorney Advisor, at asoliman@ncd.gov or 202-272-2116, to arrange a time to meet. We look forward to further dialogue on this matter.

Sincerely,

Clyde E. Terry
Chair