A ruling from the Supreme Court today says the government can dip into your Social Security benefits to recover unpaid student loans. I'm not familiar with the issue in the case, and I don't doubt that Congress authorized this kind of action. Here's what's interesting to me: Generally, it's incredibly difficult to escape student loan debt, but if you're permanently and totally disabled, the government will cancel your student loans. A few years back, the government tightened up the regulations on getting a disability cancellation, narrowing the definition of disabled and requiring a 3-year period of "conditional discharge," in which you need not make payments but the debt continues to exist. If you're still disabled after three years, the debt is cancelled.
Here's the problem: the IRS considers the amount of discharged debt to be income, for tax purposes. So maybe you manage to get out from under student loan debt, but then you end up suddenly owing the IRS a big chunk of tax money. And who would you rather have on your back: the Department of Education, or the IRS?
Link to NYT story on today's ruling (free reg req'd)