Borrowers who have a severe disability that prevents them from engaging in substantial gainful activity or renders them unemployable may qualify to have their federal and private student loans forgiven. The disability discharge process is somewhat complicated. This guide will help you understand the steps you need to take to qualify for a disability discharge of your student loans.
Less than 0.5% of borrowers qualify for a disability discharge each year, even though about 5% of borrowers have a severe disability, based on an analysis of government data.
Requirements for a Disability Discharge of Federal Student Loans
Disabled borrowers of federal education loans made in the William D. Ford Federal Direct Loan program, the Federal Family Education Loan (FFEL) program, and the Federal Perkins Loan may be eligible for discharge of their federal loans. The total and permanent disability (TPD) discharge will also cancel the requirement to complete TEACH Grant service obligations.
Note that the disabled person must be the borrower of the student loans. Although the Federal Parent PLUS loan may be discharged upon the death of the student on whose behalf the loan was borrowed or the parent borrower, Federal Parent PLUS loans can be discharged only upon the disability of the parent borrower, not the disability of the student.
There are three different ways of demonstrating a disability that is severe enough to qualify for the total and permanent disability discharge. These involve veterans with a VA determination of unemployability due to disability, people with certain Social Security disability statuses and people who obtain a doctor’s certification.
U.S. Department of Veterans Affairs (VA). Veterans who have been determined by the VA to be unemployable due to a service-connected disability or disabilities that are 100% disabling are considered to have a total and permanent disability. Veterans may also be considered to have a total and permanent disability if they have a VA determination that they are totally disabled based on an individual unemployability rating.
Social Security Administration (SSA). Borrowers who are eligible for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) are considered to have a total and permanent disability if the notice of award or Benefits Planning Query (BPQY) shows that the next disability review will be 5 or more years after the date of the most recent SSA disability status determination or review. Borrowers may request a BPQY from the SSA office that issued their SSDI or SSI or by calling 1-800-772-1213.
Doctor Certification. A borrower is considered to have a total and permanent disability if a doctor certifies on the TPD Discharge Application that the borrower is unable to engage in substantial gainful activity due to a physical or mental impairment that has lasted for a continuous period of 60 months (5 years), can be expected to last for a continuous period of 60 months or can be expected to result in death. The doctor must be a M.D. or D.O. who is licensed to practice medicine in the U.S.
The U.S. Department of Education has implemented a data match with the VA and SSA to help identify borrowers who might qualify for a total and permanent disability discharge.
The U.S. Department of Education will send the borrower a letter if the data match identifies the borrower as eligible for a disability discharge. The letter will include a disability discharge application for the borrower to complete and submit. No further documentation of the disability will be required.
Soon, the U.S. Department of Education will automate the disability discharge for eligible veterans unless they opt out of the process. Implementation of the automatic disability discharge process has been delayed because of the need for the U.S. Department of Education to issue new regulations to support this change.
How to Apply for a Disability Discharge of Federal Student Loans
To apply for a total and permanent disability discharge, complete the TPD Discharge Application and submit it with any supporting documentation.
The TPD Discharge Application is available in PDF format or through an interactive online tool on the DisabilityDischarge.com web site. The online tool will prefill parts of the application form. Do not use a TPD Discharge Application available from other web sites, as they may not be current.
You can also contact Nelnet, the servicer who processes TPD Discharge applications on behalf of the federal government, to ask for an application to be mailed to you. You can contact Nelnet by calling 1-888-303-7818, sending a fax to 1-303-696-5250 or sending email to email@example.com.
If you tell Nelnet that you will be submitting a TPD Discharge application, they will place your federal loans in forbearance for 120 days to give you time to complete the application form. After they receive the TPD Discharge application, your federal loans will remain in forbearance while the application is reviewed. (Note that if your federal student loans are in default and subject to administrative wage garnishment or Treasury offset, the wage garnishment and offset will continue during the forbearance until the TPD discharge application is approved, when they will stop.)
Borrowers can also choose a representative to apply on their behalf. Unfortunately, the borrower will have to complete an Applicant Representative Designation form, even if the borrower’s representative already has a power of attorney for the disabled borrower. Yes, you have to complete a form to let someone else complete forms on your behalf.
Supporting documentation includes a copy of the VA determination of unemployability, the SSA notice of award for SSDI or SSI or Benefits Planning Query (BPQY Form 2459), or the doctor’s certification on the TPD Discharge application.
It is best to send the completed TPD Discharge application and other forms with delivery confirmation or by certified mail, return receipt requested, so you have proof of delivery. Mail the forms to U.S. Department of Education, P.O. Box 87130, Lincoln, NE 68501-7130.
If you are sending the forms by FedEx or other overnight delivery service, send it to U.S. Department of Education, 121 South 13h Street, Suite 201, Lincoln, NE 68508.
Keep a copy of the TPD Discharge application and supporting documentation for your records.
Processing of a Disability Discharge Application
After the borrower or the borrower’s representative submits the TPD Discharge application for federal student loans, the application will be approved or denied.
Approval of the TPD Discharge Application
The borrower can stop making payments on their federal student loans after they receive notice of approval of their TPD Discharge application.
If the TPD Discharge application is approved, any loan payments made on or after the date of disability determination will be refunded to the borrower.
The date of disability determination is the date the VA made the disability determination, the date Nelnet received the SSA documentation or the date the doctor signed the TPD Discharge application.
Denial of the TPD Discharge Application
If the TPD Discharge application is denied, the borrower can submit a new TPD Discharge application at any time. It is best to include new information about the disability that was not provided with the previous application.
Note that if the previous TPD Discharge application was submitted less than 12 months ago, the borrower can ask Nelnet to reevaluate the discharge application without having to submit a new application.
Borrowers who are actively being treated for cancer should consider applying for a cancer deferment.
What Happens After Approval for a Disability Discharge?
Post-Discharge Monitoring Period
If the borrower’s TPD Discharge application was approved based on SSA documentation or a doctor’s certification, there will be a 3-year post-discharge monitoring period.
During the post-discharge monitoring period, the borrower’s obligation to repay the student loans or complete TEACH Grant service requirements will be reinstated if:
The borrower’s annual earnings from employment during the post-discharge monitoring period are greater than 100% of the poverty line for a family of two in the borrower’s state, regardless of the borrower’s actual family size, or
The borrower does not tell the U.S. Department of Education about changes in their address and telephone number or does not provide the U.S. Department of Education with documentation of their annual earnings from employment once a year for three years during the post-discharge monitoring period, or
The borrower receives another disbursement of a federal student loan or TEACH Grant that was first disbursed prior to approval of the TPD discharge and does not return the disbursement within 120 days of the disbursement date, or
The borrower gets a new federal student loan or TEACH Grant during the post-discharge monitoring period, or
The Social Security Administration (SSA) notifies the borrower during the post-discharge period that they are no longer considered disabled or reduces the review period to less than five years
Note that the focus is on earnings from employment, not unearned income. Investment income, such as interest, dividends and capital gains, do not count toward the poverty line limit. Likewise, disability benefit payments and retirement benefit payments are not considered earned income.
The earnings limitation applies to earnings in any occupation, not just the occupation for which the borrower was trained. The TPD Discharge requirements are that the borrower must not be able to engage in any type of substantial gainful activity.
Veterans whose loans are discharged because of a VA determination are not subject to the post-discharge monitoring period.
No New Federal Student Loans or TEACH Grants
If the borrower returns to college during the 3-year post-discharge monitoring period, the loans and TEACH Grant service obligation will be reinstated. The borrower will be required to resume repayment of the previously discharged loans and acknowledge that they are once again responsible for completing the TEACH Grant service requirements.
Even after the post-discharge monitoring period, the borrower cannot receive new federal student loans or TEACH Grants unless a doctor certifies that the borrower is able to engage in substantial gainful activity.
The borrower must also sign a statement that acknowledges that the borrower cannot get another TPD discharge based on their current disability unless the disability deteriorates.
Impact on Medicaid and Medicare
The TPD Discharge and the 3-year post-discharge monitoring period do not affect eligibility for Medicaid or Medicare, nor any Medicare subsidies.
Tax Treatment of Disability Discharge
Normally, the cancellation of debt is treated as income by the IRS.
However, the Tax Cuts and Jobs Act of 2017 changed the treatment of student loans that are discharged due to the borrower’s death or disability.
Federal and private student loans that are discharged due to the borrower’s death or disability are tax-free on federal income tax returns from 2018 through 2025, inclusive.
Whether the disability discharge is tax-free depends on the date the borrower is considered to have received the discharge. If the discharge occurred because of a VA determination, it is based on the date the discharge was approved. If the discharge occurred because of SSA documentation or a doctor’s certification, it is based on the end of the 3-year post-discharge monitoring period.
The amount of debt canceled by a disability discharge may still be considered income to the borrower for state income tax purposes.
Disability Discharge of Private Student Loans
Some private student loans provide a disability discharge that is similar to the TPD Discharge for federal student loans. These lenders include:
Discover Student Loans – 1-800-983-1412
Earnest – 1-888-601-2801
Sallie Mae – Call 1-800-4-SALLIE (1-800-472-5543)
SunTrust Education Loans – 1-800-233-0557
Wells Fargo – 1-800-658-3567
In addition, several state student loans provide a disability discharge, including state student loans from Georgia, Iowa, Kentucky and Texas.
Some of the lenders offering a disability discharge on private student loans provide a disability discharge on private student loans that is more generous than the disability discharge standard for federal loans. For example, some of the lenders will discharge private parent loans if the student becomes totally and permanently disabled, not just if the parent borrower becomes disabled.
Sallie Mae was the first lender to offer a disability discharge on private student loans, starting with the Smart Option student loan in 2009. Other lenders followed their lead within the next few years and started offering disability discharges on new private student loans.
If a lender does not provide a formal disability discharge process or the borrower has older loans, the borrower should nevertheless call the lender and ask for a compassionate review of their situation. Many lenders will cancel the student loan debt of borrowers who became totally and permanently disabled while serving as a member of the U.S. Armed Forces or while working for police, fire, EMT or other emergency services.