Student Loan Disability Discharge

[Anonymous]

If you don't mind

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@coolturtle wrote:

I have a question.

I am eligible to apply for Student Loan Disability Discharge, and my question is that if I get approved, and all of my student loans are forgiven, will that have a positive or negative affect on my credit score?

Also, what if there is a school balance that's gone into collection, but that is also forgiven if approved, will that remain on my credit history?

Thank You!

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me asking... How long did the discharge process take?

[Anonymous]

I'm disabled since 2007, earning less than $12,000 a year and my student loans from Grad School were approved and cancelled last year.  I just did my income taxes for 2014 and got one hell of a surprise!  In the small print... make sure you read it... the amount of your loans that are written off are considered INCOME!!!

I OWE OVER $18,000 IN FEDERAL TAXES FOR 2014!  I'm in a complete panic.  I don't live paycheck to paycheck and now, I'm pretty sure, they will probably take ALL OF MY MONEY to pay this damn tax.

BE CAREFUL AND WATCH WHAT YOU DO BEFORE YOU ARE EXCITED ABOUT YOUR LOANS BECAUSE YOU WILL GET BIT -- LIKE I JUST DID!

[gdale6]

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3thk wrote:

I'm disabled since 2007, earning less than $12,000 a year and my student loans from Grad School were approved and cancelled last year.  I just did my income taxes for 2014 and got one hell of a surprise!  In the small print... make sure you read it... the amount of your loans that are written off are considered INCOME!!!

I OWE OVER $18,000 IN FEDERAL TAXES FOR 2014!  I'm in a complete panic.  I don't live paycheck to paycheck and now, I'm pretty sure, they will probably take ALL OF MY MONEY to pay this damn tax.

BE CAREFUL AND WATCH WHAT YOU DO BEFORE YOU ARE EXCITED ABOUT YOUR LOANS BECAUSE YOU WILL GET BIT -- LIKE I JUST DID!

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You can claim insolvency on that with the IRS, you should consult a tax attorney.

[FIRECOURAGE]

Great Info!! I applied for Student Loan Discharge as well. Nelnet received my application on 12/30/2014 and all of my loans were discharged on 02/05/2015. I was curious how it would work with my credit report. Thanks for posting your experiences Sandman. Very good stuff.

My TPD was because of being 100% Permanent and Total with the VA. I'm also planning on submitting form 982 for insolvency next tax season when I receive my 1099.

[sandman4412]

Hey guys,

I know, it's been awhile but I've been keeping up with all of the posts on this thread. I didn't have much to add since the last time I posted but since tax season is upon us, I figured I'd share a bit of information regarding my dealings with the dreaded 1099-C tax form.

I received this form in the mail this past Friday and basically it states that I would have to pay taxes on my previously discharged student loans as the loans are considered taxable income.

It's definitely disheartening to be responsible for paying back those taxes since my monthly income would suffer greatly if I was responsible to do so. I owed about 20% of all my past loans combined in taxes. Fortunately, I was prepared for this to happen from back when my loans were discharged while I was doing my research. I've read about what to do in order to lessen the owed amount or be totally free of it altogether. So let me just describe what I've done in short as to avoid confusion on the steps I took to resolve my case:

-Once I received my 1099-C tax form, I knew to claim insolvency which states that at the date of my loan being discharged, my assets (monetary value of my belongings) was less than my liability (amount of taxes from my loans).

-I filled out Form 982 (insolvency claim form) stating the amount of my assets was less than my liability and could not afford to pay off my student loans at the time of discharge.

-My only assets are income derived from SSDI, clothing, personal belongings, and any funds in my bank account. 

-Since my assets were lower than the taxes owed, I legally owed none of the amount stated on my 1099-C form.

-My federal / state tax return reflected no taxable income whatsoever so I wouldn't be getting anything from the IRS but I wouldn't be paying anything on the same token.

-Signed, sealed, delivered and that's the end of my filing for the 2014 tax season.

(I do realize that my insolvency situation can greatly differ from others' cases similar to how my personal taxes can differ just the same. I sincerely hope that my story can be of some assistance to anyone that's dealing with the same situation. One thing I can say for sure is to seek a professional tax advisor when dealing with your own insolvency case. Doing it on your own is highly discouraged, trust me...I've tried and it's very complicated to complete on your own without any experience)

Good luck to all of you...

[2b2rich]

Any money that you have paid on your student loans since the date of your 100% P&T award, will be refunded to you via US Treasury check. (You may receive a letter from who ever is servicing your loan(s) at the time of discharge, needing to verify your address).

You are NOT subject to the 3 year income monitoring period the way SSDI discharges are.

I am still waiting to see what happens with the credit reports, I have heard that they are marked paid in full with a zero balance and 'paid as agreed'.  Some have said they had luck getting lates removed later by disputing them.  I already have my refund check and there is still no change to my credit report (still shows a balance) but I've also been told this could take a month or two.

Thank you for your service, Firecourage!

[Letyzap]

How much did you owe on your student loans? I'm also waiting on how much I will have to pay for $17,000

[FIRECOURAGE]

2b2rich

Do you have an update on how your credit was affected by the student loans being discharged? 

[2b2rich]

Somewhat, Firecourage.

Yesterday I received an alert for a change in two of my accounts (I had all of my student loans consolidated years ago, but they separated them into two after they went into default).
Anyway, on EQ it shows a zero balance, but that is all that changed. It still shows that they were collection accounts, even though they're in the installment account section on my credit reports and not in the collection accounts section.

HOWEVER, my score did jump about 50pts so it did make a difference there.

They have not updated on TU & EX yet.

I do intend to dispute the status with EQ and hope for an outcome like sandman's.

I will update when anything else changes!

[2b2rich]

**UPDATE**

My student loan(s) just updated on Experian (it was one consolidated loan, but they report it as two I believe between subsidized and unsubsidized),

and anyway, they updated to 'Paid Collection' and my score jumped +35.  I guess I can deal with that.  I've read that any negative wording/status is suppose to be removed, but negative payment history can remain, so I will wait a bit and see if I can get the status changed to simply 'paid' since they are still listed in the installment accounts section.

My EQ score went up +19 points when it updated there, but two other factors may have kept it from increasing more:
1)  It still shows the original student loan by the lender as being an  unpaid collection and looks like I still owe a lot of money (dispute in process there)
2) The same day, a CA added an old paid Collection as a new and UNPAID collection, so I know that prevented much increase.  I have them on several violations and have filed a complaint with their states CFPB, so hopefully I will get a more accurate picture of what the increase would have been when that is done.  Incidentally, this 'new/bogus' collection account was reported to all three so I may see even more of an increase on EX when the dust clears here.

Just waiting on TU to update the student loans too.