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Bill Would End Tax Penalty on Vets with Forgiven Student Loans

Marine walking with college books.

Permanently disabled veterans or survivors of veterans who have their student debt forgiven would avoid taxes on the "income" under legislation recently introduced in the U.S. Senate.

By law, forgiven student debt is counted as income by the Internal Revenue Service, resulting in veterans or their survivors and others being hit with a tax bill -- something that Derek Fronabarger, policy director of Student Veterans of America, calls "unconscionable" to do to a family during a time of grief.

"This bill aims at changing this tax issue so that those families who have already paid the ultimate price are not additionally saddled by a discharged student loan tax," he said. "SVA fully supports this bill and hopes to see it move forward quickly."

The bipartisan bill, known as S.2800, was filed about two weeks ago by Democrat Chris Coons of Delaware and Republicans Angus King of Maine and Rob Portman of Ohio. The bill currently is in the Senate Finance Committee, where it also has picked up the support of Sen. Kelly Ayotte, a Republican from New Hampshire.

Though the bill is not solely aimed at veterans it has picked up the support of several veterans organizations in addition to SVA, including The American Legion, Iraq and Afghanistan Veterans of America, Military Officers Association of America, Veterans Education Success, and Paralyzed Veterans of America.

Every year, thousands of Americans, including veterans, develop disabilities or chronic health conditions so severe that they are determined by the federal government to be totally and permanently disabled, the bill's three original sponsors said in a joint statement.

The lawmakers filed the bill after hearing from constituents in their states, including a Maine couple who told King that after the Education Department and private lenders forgave loans taken out for their son, who died of a brain aneurysm in 2012, they received a tax bill from the IRS for more than $24,000.

King said the family has had to go into their 401(k) to pay the bill, sending the IRS more than $400 each month.

Portman said families should not be punished by the federal government with a massive tax for successfully applying for debt forgiveness.

"The same tragic reason they cannot pay back their student loans is the reason that they cannot afford an enormous tax increase so contrary to the purposes of our student loan system," he said.

-- Bryant Jordan can be reached at Bryant.jordan@military.com. Follow him on Twitter at @BryantJordan.