When I read IRS Publication 4681, it appears to read that the exclusion is only applicable if the student is the one that is permanently disabled. The Publication states "To exclude canceled student loan debt from your income, your loan must have been made by a qualified lender to assist YOU (emphasis added) in attending an eligible educational institution." In addition, under Item 5, the Publication states "In addition to (1)–(4) above, for loans canceled on account of the death or total and permanent disability of the student only, the lender of a private education loan (as defined in section 140(7) of the Consumer Credit Protection Act)."
