Many people associate the student debt crisis with recent graduates who are employed in the service sector and are unable to find employment in the profession for which they paid a high tuition fee. The data, however, shows that older generations are not having the most difficulty repaying their school loans. Rather, according to recent data from the New York Fed, Gen X and Baby Boomers are more behind on their school debts than any other age group.
Student Loan Of Gen X
As of the most recent quarter, the national debt incurred by students from student loans was $1.6 trillion, with a significant share owed by those who attended school before the tripling of educational expenses and the surge in inflation. Often referred to as the sandwich generation, Gen X has greater financial responsibilities than either the millennials or Baby Boomers who came before them. Gen Xers frequently balance mortgage payments, supporting their children through college and early life, and taking care of aging parents who may also need financial assistance.
Total And Permanent Disability Discharge Program
Even though federal student loan forgiveness is often tax-free until the end of 2025, there is one program that is a little trickier. For borrowers who are unable to sustain substantial, meaningful employment due to a medical condition, the federal student loan debt may be discharged under the Total and Permanent Disability discharge program. There is a three-year post-discharge monitoring period for applicants who receive authorization for a TPD discharge based on a medical provider’s certification or the receipt of Social Security disability benefits.
During this time, the forgiven loans may be reinstated in certain situations (like going back to school and implementing a new federal student loan). According to the Education Department’s stated position, borrowers may still be subject to taxes on TPD discharges even though the forgiveness of student loans is not subject to tax through the end of 2025 because the government does not consider the discharge to be complete for tax reasons until after the three-year tracking period has passed.
3 Year Period For TPD Program
The three-year monitoring period for borrowers who were granted a TPD discharge in 2023 would not end until 2026. This implies that if Congress decides not to prolong the existing temporary tax relief, they could get a 1099-C in 2027 (for tax year 2026) instead. If they are eligible for other tax deductions, such as insolvency, many borrowers who are eligible for TPD discharge will still not be required to pay tax on their pardoned student loan sum. However, it would be wise for those who were discharged from TPD in 2023 or later to speak with a tax counsel. In a few years, the inability to do so can lead to some very unexpected events.