1099-C for federal student loans for deceased mom

Technical topics regarding tax preparation.
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Mother, who is married, dies in 2017. She had taken out federal student loans for her daughter to go to college. Upon mother's death, the daughter provided a death certificate to the lender. Thus, a 1099-C was issued in the mother's name for approximately $70,000 from USA Funds, not the US Dept of Education. The daughter is certain that the loans were all federal loans and had this confirmed by USA Funds.

There are no assets at all in only the mother's name. The only joint assets were the home with the father and the mother's car. The house has a tax assessment of $122,000. Not sure of the exact FMV. The father only has SS and retirement income.

Is this federally taxable? I have read that federal student loans are discharged upon the death of the borrower. Private student loans are typically not discharged. Should I do a MFJ or MFS return? I'm thinking that it would be a close call to call the mom insolvent at date of death. (1/2 of the house FMV would be approximately the same or more than the loan.) Her estate literally has no assets. Should I show it on line 21 and then back it out with an explanation that it was federal loans...or that it will be reported on the estate? But there is no estate.

Thanks!
 

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