Total and Permanent Disability Student Loan Discharge

[Lrob5680]

I had my loans discharged in 2024 due to being deemed totally and permanently disabled. I have asked Nelnet who discharges federal loans due to disability, Aidvantage (my loan servicer), and reached out to Federal Student Aid asking the question if I should have received a 1099-C form after the discharge. No one was helpful, no one answered my question. I live in WI where loan discharge is considered taxable income. I don't know how else to proceed, but I don't feel comfortable filing my taxes without that "income" claimed.  Does anyone know who else I can contact or if I am safe to file without the 1099-C form?

[Vanessa A · Accepted solution]

This is NOT considered taxable income for the IRS. Wisconsin follows federal law when it comes to student loan forgiveness due to death or disability. 

[Lrob5680]

Thank you, and I don't mean to doubt your expertise in this area; however, upon finally hearing back from them, my response from Federal Student Aid seems to contradict what you are saying. They claimed Aidvantage should have sent me a 1099 as the amount discharged is, in fact, taxable. When I then contacted Aidvantage with that information they said that, although the amount may be taxable depending on the state I live in, they won't give me a 1099 form for the discharge due to the tax law you listed. If, for sure, WI law states I won't owe any amount forgiven, then I should be in the clear, regardless. It's just disconcerting to me to be getting completely different answers from everyone I ask.

As a fun follow up, I'm wondering, how do people in states that do count the discharge as income claim it on their taxes properly when companies like Aidvantage won't send out 1099s? I asked them that, they simply said they won't send out any 1099 forms. Sorry if the answer is obvious, I'm not a tax genius by any means. 

[RobertB4444]

The first person that you spoke to was wrong.  If your loan is discharged due to permanent disability then it is not taxable.  Wisconsin follows federal law on that as @VanessaA points out.  You do not need to include it as income and the amount has not been reported as income - that's what a 1099 does.

If it were taxable to your state you would have to get a loan statement showing the amount discharged and enter it on your state return as though you had received a 1099.  So it's nice that you don't have to do that.

@Lrob5680