Adjusting to life with an injury or chronic illness is undoubtedly a challenge, especially if it has an impact on your ability to work and earn a living. This stress is one of the reasons that student loan borrowers with disabilities can fall behind on payments and go into delinquency and default — even though there are options available to help them avoid these consequences.
If you are temporarily unable to work because of an injury or illness and struggle to afford your monthly student loan payments as a result, reach out to your student loan servicer right away to discuss options that may be available to lower your monthly payment amount or pause your payments. The federal student loan program offers several repayment plans for all borrowers who are struggling to repay, including options that could lower your monthly payment amount to zero if your income is low enough.
However, if your medical situation is permanent, you may qualify to have all or some of your federal student loans canceled through what is known as a total and permanent disability, or TPD, discharge. Many private student loans provide a similar option. To receive TPD discharge of federal student loans, you must certify that you are unable to work or earn an income due to an injury or illness from which you are not expected to improve or recover.
How to Qualify for TPD Discharge
To qualify for a TPD discharge on a federal student loan, you must meet one of the following criteria:
— Certification by the U.S. Department of Veterans Affairs determining that you are totally unemployable either due to a service-connected disability or based on an individual unemployability rating.
— Eligibility for 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 your most recent Social Security Administration, or SSA, disability determination.
— Certification from a physician that you are totally and permanently disabled, which means you are “unable to engage in any substantial gainful activity” because of a mental or physical impairment that can be expected to result in death; has lasted continuously for at least 60 months; or can be expected to last continuously for at least 60 months.
TPD discharge can provide relief from having to pay back direct loans, some Federal Family Education Loans, Perkins loans and TEACH Grant service obligations.
How to Apply for TPD Discharge
To apply for a TPD discharge, submit an application with requested information to your loan holder. For most federal student loans, your loan holder is the U.S. Department of Education, but for private student loans or older FFEL program loans you should check with the lender for more information about the process and eligibility requirements.
Once your application is received, your loan holder will make a determination based on your situation.
Some federal student loan borrowers who qualify for a TPD discharge will receive notification from the Department of Education letting them know they are eligible to apply. That’s because the SSA helps the department identify borrowers who qualify for a discharge based on their status, allowing the department to alert these borrowers and provide them an application proactively.
In addition, the VA recently established a process for identifying veterans who are eligible for a TPD discharge. If you are identified through this process, you will receive a notice from the Department of Education that your loans will be discharged in 60 days unless you request to not receive a discharge. If you want your eligible loans to be discharged, you do not need to take any action.
However, you can qualify for a TPD discharge without receiving either notice. If you believe you qualify for the discharge, download the application from the TPD discharge website DisabilityDischarge.com and gather the requested materials.
You should let Nelnet, a student loan servicer that assists the Department of Education in administering the TPD discharge process, know that you want to apply. That way, any required federal student loan payments will stop for 120 days to give you time to submit the application. Once Nelnet receives the application, you won’t be required to make any payments on your loans while it is being reviewed.
Importantly, a representative can complete and submit a TPD discharge application on a disabled borrower’s behalf after completing an Applicant Representative Designation form, which is also available at DisabilityDischarge.com.
If your request for TPD discharge is denied, you may be able to ask for a reevaluation of the application; this would involve providing new supporting information about your eligibility for discharge within 12 months of the denial notification date.
Other TDP Discharge Considerations
There are a few additional things that you should consider or know about before you apply for total or permanent disability discharge for student loans. First, any federal student loan amount that is discharged may be considered taxable income, depending on when you received the discharge and how you qualified. That means you might have to pay federal taxes on the amount discharged.
Also, you may need to pay state income tax on the discharged amount, even if you don’t have to pay federal income tax. Consider consulting a tax professional to better understand your tax obligation if you receive a student loan discharge based on disability.
Finally, student loan borrowers who have been granted a TPD discharge normally will be placed in a three-year monitoring period. During that time, your lender or the Department of Education may check in with you to be sure you still meet the criteria for the discharge. However, discharges granted based on VA certification are not subject to this monitoring period.
There are several scenarios where the obligation to repay your discharged student loans could be reinstated, such as if you receive a new TEACH Grant or a new federal direct student loan, or if you receive annual job pay over the poverty guideline amount for a family of two in your state. Visit StudentAid.gov for more details.
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