According to info from the NYC pension site, they are required to issue a 1099 when the term of repayment is greater than 5 years(which of course this is). However there is an exception to taxibility if the proceeds are used to purchase a home.
From NYC Police Pension Fund website:
Principal Residence Exception
Internal Revenue Code 72 (p) (2) ( (ii) provides an exception to the five-year rule mentioned in “Loan Taxability” above if you use the loan to purchase a principal residence. If you can demonstrate that your loan falls within this exception, the IRS will allow you to defer the tax payable on the loan. PPF is required by law to send you IRS Form 1099-R for this loan.
I know he hasn't defaulted on the loan because it was taken out in November and the payments are taken right out of his paycheck.
With this in mind I can't think of any other way to make the 50k non taxable on the return.