When you become disabled, federal student loans and private student loans do not automatically go away. You still owe those student loans. You still have to make your monthly payments or request a deferment or forbearance.
You will still owe those loans until you get a disability discharge.
Your federal loans and private loans will grant you a loan discharge if you have a total and permanent disability. And the good thing about that discharge is that you won't have to fear a huge federal tax bill on the student loan debt that's forgiven. This is because the IRS does not treat the loan balance forgiven due to disability is not treated as taxable income.
Loan amounts discharged due to TPD may still be considered income for state tax purposes. So before you file your state tax return, speak with a tax professional near you.
The loan discharge is not automatic, however.
You have to apply.
More on that below.
Can I get my student loans forgiven if I am disabled?
You can get student loan forgiveness if you have a total and permanent disability.
Most student loan borrowers who are disabled have a permanent partial disability. This type of disability means that you're still able to function at your chosen work, but not at full capacity.
You're not eligible for loan forgiveness if your disability is permanent but partial.
A total and permanent disability, on the other hand, means you are completely disabled; you can no longer work in the capacity for which you were trained.
Basically, what I'm saying is that just because you get disability benefits doesn't mean your student loan debt will be forgiven.
How do you prove total and permanent disability for federal loans
You have 3 options to prove your eligibility for a federal student loan discharge due to permanent disability:
- Department of Veterans Affairs. Submit a disability determination letter from the VA showing you are unemployable due to a service-connected disability
- Social Security Administration. If you're currently receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), submit a letter from the SSA stating that your next scheduled disability review will be 5 to 7 years or more from the date of your last SSA disability determination. Your review date is typically located on your SSA Notice of Award Letter. You can also use your Benefits Planning Query Letter.
- Physician Certification. You can also have a doctor complete and sign page 2 of the TPD Discharge Application. On that application, your doctor will certify that you have a medically determinable physical or mental impairment that is either expected to result in death or last for a continuous period of at least 60 months and that impairment causes you to be unable to engage in any substantial gainful activity. The Department of Education defines substantial gainful activity as a level of work performed for pay or profit involving significant physical or mental activities, or a combination of the two.
You can download your VA Benefit Summary Letter (VA Award Letter) online at va.gov.
You can request a copy of your SSA Notice of Award letter by calling Social Security at 800-772-1213 or, in normal times, visiting your local office. As of March 17, 2020, the Social Security Administration temporarily closed local offices due to the coronavirus pandemic.
Which loans are eligible for disability loan forgiveness
All federal student loans are eligible for TPD discharge. This includes loans made under the:
- Federal Family Education Loan Program (FFEL)
- William D. Ford Federal Direct Loan Program
- Federal Perkins Loan Program
To find out if your private student loans are eligible, contact your loan servicer or loan holder. They'll be able to tell you if they have a forgiveness program due to disability and how to apply.
Some private lenders like Sallie Mae offer loan forgiveness to the student loan borrower that becomes disabled but not the cosigner. Others, like Wells Fargo, have forgiveness programs for both scenarios.
How to apply for federal student loan total and permanent disability discharge
You apply for a total and permanent disability discharge by completing the US Department of Education's TPD Discharge Application.
You can complete the application online at disabilitydischarge.com using the Department of Education's interactive online tool. You can also complete a paper application available in PDF format.
(My preference is to submit a copy of the paper application.)
The TPD Discharge Application is a simple two-page form.
You're responsible for completing and signing page 1.
You'll need to provide your personal information and indicate which proof of eligibility you're submitting with your application. If you're submitting proof from the VA or SSA, you'll sign the bottom of page 1 and submit the application to Nelnet.
(Nelnet is the designated loan servicer that handles the discharge process for all TPD claims.)
If you're using your doctor's certification as proof, you'll give the form to your doctor and have them complete and sign page 2.
Where to submit the TPD Discharge Application?
You'll submit the paper application to Nelnet at:
US Department of Education
PO Box 87130
Lincoln NE 68501-7130
You can also fax it to Nelnet at 303-696-5250 or email it to them at email@example.com.
Finally, you can complete the application process online at secure.disabilitydischarge.com.
What happens if your application is approved
If your discharge application is approved, you will get a notice stating:
- your student loan debt is discharged and
- you may be subject to a three-year monitoring period
You may not be subject to the 3-year monitoring period if you are a totally and permanently disabled veteran.
In addition, the Department of Education will contact your loan holders to return any loan payments received on or after your disability date. Your disability date is either:
- the date the VA determined you have a service-connected disability that is 100% disabling or
- the date Nelnet received the documentation used to approve your request or the date your doctor signed the discharge application.
About the 3-Year Monitoring Period
Once your application is approved, your student loan discharge isn't final; you have to wait 3 more years.
For the next 3 years, the Department of Education will look at your annual earnings from employment to determine if you keep your student loan discharge.
If your earnings exceed the poverty guideline amount for a family of two in your state, regardless of your actual family size, your loans will be reinstated.