Last week, the Student Loan Ranger covered three student loan discharge options you’ll hopefully never have to use.
That list was actually going to be four items long, but we decided to dedicate an entire post to total and permanent disability discharge, because this seems to be the one we get the most questions about and there’s a lot to cover.
The background on this discharge can be complicated, but for good reason. In 1999, the Department of Education’s Office of the Inspector General issued a report showing that 23 percent of the borrowers who received a disability discharge between 1994 and 1996 went on to be employed and earn income shortly after the discharge was completed.
To receive this discharge, the borrower would have had to certify that they were unable to work and earn an income due to an injury or illness from which they were not expected to improve or recover. If you consider that, then we either had a lot of miracles or a lot of fraud on our hands.
Since then, the Department of Education has had to try and protect federal taxpayers by putting checks and balances in place to deter and identify disability discharge fraud while also trying to ensure the process is as painless as possible for those who are truly disabled as defined in the federal statute. It hasn’t been easy, and the process will likely continue to be tweaked over time — but here’s the process as it stands today.
[Learn about three surprising student loan repayment facts.]
Qualifications
To qualify for a total and permanent disability discharge, the borrower must meet one of the following criteria:
— The U.S. Department of Veterans Affairs has determined that the borrower is unemployable due to a service-connected disability.
— The borrower is receiving Social Security disability insurance or supplemental security income benefits, with a review date of no less than five to seven years from the date of their most recent Social Security Administration disability determination.
— A physician has certified that the borrower is totally and permanently disabled. This is defined as being “unable to engage in any substantial gainful activity” due to a physical or medical impairment that can be expected to result in death, has lasted for a continuous period of at least 60 months or that can be expected to last for a period of at least 60 months.
[Quiz: can you spot the signs of a student loan repayment scam?]
The Process
In response to complaints about the complexity of this discharge process, the Department of Education recently developed a new, more streamlined process. All federal student loan borrowers applying for a total and permanent disability discharge will submit and follow the process of their application online, regardless of whom their loan holder is, what type of federal loan it is or whether or not it’s in default.
The intent here is to ensure that the borrower only has to submit a single application, regardless of how many federal loan holders they might have.
Once you reach out to that site, either by phone or online, the servicer, a Department of Education vendor called Nelnet, will help you locate all your federal loans and notify all your loan holders that you have stated you wish to apply for the discharge. This will prompt those loan holders to put your loans on hold for up to 120 days while you complete and submit the application.
If you do not submit the completed application within that time frame, the loans will go back into repayment and any interest that has accrued will be capitalized — added to your principal balance. Once a completed application is received, the loans will continue to be on hold while it is reviewed. Approvals and denials are sent by mail, generally within 60 days.
[Know when it’s OK to postpone your student loan payment.]
Other Things to Know
With the exception of discharges granted based on certification from the Department of Veterans Affairs, all loans that have been granted discharges will be placed in a three-year monitoring period. During that period, the Department of Education may ask for proof that you still meet the criteria for a total and permanent disability discharge.
It is very important that the borrower, or whoever is assisting them with this process, opens and responds to every request received regarding this loan. During the last major tweak in the regulations, it was revealed that almost half of the borrowers who are initially approved for discharge have their loans reinstated during the three-year monitoring period due to their failure to respond to such a request. Once a loan is reinstated, the borrower has no choice but to make payments or start the process all over again.
Also, note that if the borrower takes on new federal loans or TEACH grants during this period, the discharge will be denied and collection will resume on the loans.
If you do need to explore this option or the other discharges further, contact the loan holder or check out their website for further instructions and applications. Note that depending on the discharge type, your payments will continue to be due until a completed application is received and, with the exception of a total and permanent disability discharge, you’ll need to send an application to every loan holder.
More from U.S. News
3 Student Loan Discharges to Hope You Won’t Need
Know How to Resolve Student Loan Disputes
Understand the Consequences of Student Loan Default
Ways to Qualify for a Total and Permanent Disability Student Loan Discharge originally appeared on usnews.com
