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Student loans canceled for disability can still be taxed

Even though student loans can be canceled because of total disability, individuals in Georgia and elsewhere who have received this benefit have been blind-sided by fees associated with loan forgiveness. People who currently receive Social Security Disability benefits may be subject to taxable income requirements if their loans are forgiven.

Those same loans can sometimes be canceled by working in a particular field. Doctors, teachers and other public servants often qualify to have their loans forgiven. In that situation, taxes do not apply. For those who are on permanent disability, however, taxes may add up quickly into the tens of thousands of dollars, affecting their ability to maintain a reasonable standard of living.

The Internal Revenue Service forms are confusing, according to those who have gone through the process, and many people who receive disability payments are unaware that they may qualify for programs that allow for tax fees to be expunged. Debtors who are declared insolvent immediately before the loan discharge may be able to avoid paying the associated fees.

The consequences for failing to pay these massive tax sums can be devastating. The government can put a lien on an individual's house and even ruin their credit. This is particularly distressing, considering that those who are receiving Social Security Disability are likely to be permanently disabled and thus unable to ever work again. The inability to earn new income can hobble from the person's ability to pay the tax fees or any other bills.

Many people who have gone through the process are angry because they have essentially traded one debt for another. Those who have had their loans expunged because of disability say that there's a reason they're unable to pay: They can't work or earn money.

Source: MSN money, "Canceled debt may mean big tax bill," Geri Detweiler, April 6, 2012

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