Sunday, September 23, 2012
As I have previously discussed, when a student borrower passes away, that borrower usually does not have to pay any taxes on the discharged debt, or the IRS will not try to collect from the deceased borrower. Contrast this principle with the following scenario, a student dies and he or she had a joint or co-signed loan with a parent. If the IRS forgives the loan, then the debt becomes COD or cancellation of debt income. This means that the parent will have to pay the taxes on that student loan because the forgiven total is considered ordinary income under the I.R.C.
See Robert W. Wood, There's No Escape: Death, Taxes And Student Loans, Forbes, Sept. 20, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.