Student-loan borrowers with disabilities could be paying extra taxes because of 'false and misleading' information on debt forgiveness, advocates say

• Student Defense wrote a letter to Federal Student Aid regarding student-loan forgiveness for disabled borrowers.
• It noted FSA still says the forgiveness for those borrowers may be taxable, which is not the case.

Americans with disabilities who took out student debt are eligible for loan forgiveness, but it's not an easy process. Now, advocates are saying that misleading information on the Education Department's website could make it even harder.

Student Defense — a group that advances students' rights to higher education — wrote a letter obtained by Insider to Federal Student Aid (FSA) head Richard Cordray on Friday regarding "false and misleading" information on debt forgiveness for borrowers with total and permanent disabilities (TPD).

The issue at hand is that people with disabilities are eligible for loan forgiveness, or what's called a "discharge" of their debt, if they meet FSA's requirements. But some may think they have to report that forgiveness as taxable income, even though they don't.

Specifically, the letter — also signed by organizations Justice in Aging and Delaware Community Legal Aid Society — noted that although, under President Donald Trump's Tax Cuts and Jobs Act, Congress eliminated federal income tax consequences for disability discharges received from January 1, 2018 through December 31, 2025, the front of the discharge application still warns borrowers any loan amount discharged may be considered taxable income.

"All borrowers who receive a TPD discharge may be confused by this language; some may even go so far as to report the discharge as income on federal tax returns, subjecting them to an increased tax liability," the letter said.

Student Defense said it had flagged the error to the Office of the General Counsel in August, but changes to the text on the TPD applications have yet to be made, prompting the Friday letter to Cordray.

Back in 2018, a group of lawmakers, led by Sens. Rob Portman, Chris Coons, and Angus King, expressed the significance of removing the tax liability for TPD loan discharges. They wrote in a letter to then-Education Secretary Betsy DeVos that given loan forgiveness is no longer required to be included in gross income of the borrower, the Education Department should "immediately" begin forgiving loans for those eligible.

Insider previously reported on the difficult process borrowers with disabilities had to go through just to get the student-debt relief to which they were entitled. Established under President Barack Obama, anyone determined permanently disabled by a physician, the Social Security Administration, or the Department of Veteran Affairs are eligible for federal student-debt cancellation, with a requirement to submit documentation during a three-year monitoring period to verify that their incomes did not exceed the poverty line.

Submitting income documentation was a burdensome process, though, and President Joe Biden's Education Secretary Miguel Cardona waived that requirement in August. Cardona has also canceled student debt for about 364,000 borrowers with disabilities, totaling to about $7 billion.

There are a few different ways borrowers can qualify for a TPD discharge. Veterans can qualify if the VA indicates the borrower has a disability that is "100% disabling," borrowers on Social Security Disability Insurance may qualify based on a determination from the Social Security Administration, or a physician must certify the borrower is totally and permanently disabled.