You believed you would work long enough to pay it back or have it forgiven when you took out student loan debt. But then you were struck by an illness or suffered an accident that left you unable to work. Thankfully, the federal government offers student loan forgiveness for disability.
You may already know about this type of relief. But in case you don’t, I’ll explain what you need to know about the student loan disability discharge program in this article, including whether it is free from income-tax consequences.
What happens to student loans when you become disabled?
If you become disabled, you may be eligible for a student loan discharge. The Education Department will forgive your balance if a medical professional or the Social Security Administration or Veterans Administration believe that you can no longer work due to your disability.
A handful of private lenders offer this type of forgiveness as well. But forgiveness due to disability isn’t mandatory. That may change if the Private Loan Disability Discharge Act or similar law is passed.
Can student loans be forgiven due to mental disability? Mental disability and impairment can qualify for student loan forgiveness. You’ll need to provide documentation proving your disability. Acceptable documentation includes a notice of award letter from the Social Security Administration (SSA), the Department of Veteran’s Affairs, or a letter from your psychiatrist. A letter from your psychologist is insufficient unless they have a doctorate of medicine or osteopathy.
Can partially disabled veterans get student loan forgiveness? Veteran's who are partially disabled are eligible for student loan forgiveness if a doctor certifies they are no longer employable due to their disability.
Eligibility Requirements for Disability Discharge
Federal student loan borrowers have three ways to qualify for loan forgiveness when they become disabled:
- Physician’s certification: Your primary care physician or specialist can certify they believe you can no longer work due to your medical issues.
- Social Security Notice of Award: You qualify if two things are true. First, you receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits. Second, your notice of award letter from the Social Security Administration says that your next scheduled disability review will be within 5 to 7 years from the date of your most recent SSA disability determination.
- Veteran Affairs Determination Letter: Veterans with a service-connected condition that has left them unemployable qualify for this loan discharge without providing documentation from a doctor. Veterans qualify if they have a letter from the VA stating they either have a service-connected disability that is 100% disabling or are totally disabled based on an individual unemployability rating.
Can my student loans be forgiven if my spouse is disabled? You cannot get your federal student loans forgiven if your spouse is disabled. However, your spouse may be eligible to have their student loan debt forgiven through the Total and Permanent Disability Discharge Program.
Do I qualify for student loan forgiveness if my spouse is a 100% disabled veteran? There are no student loan forgiveness programs for spouses of 100% disabled veterans. While your disabled spouse can get rid of their loans, there aren't any options to eliminate some or even a portion of your debt — even if you're the primary caretaker.
Can my student loans be forgiven if my child is disabled? If your child is permanently disabled, the Department of Education will not forgive the Parent PLUS Loans you borrowed on their behalf. However, it will forgive the loans you borrowed for yourself if you become severely disabled. Similarly, some private lenders will forgive your child’s loan balance if they are disabled. But if you were a cosigner on those loans, the lender will demand repayment from you. Since most student loan debt never goes away, negotiating a student loan settlement may be your only way to get relief.
What disabilities qualify for student loan forgiveness?
Any physical or mental impairment that prevents you from working can qualify you for student loan forgiveness.
Borrowers have qualified for a TPD discharge because of:
- stage IV or terminal cancer
- chronic fibromyalgia
- degenerative disc disease (severe back pain)
- major depression
- bipolar disorder
ADHD, on the other hand, typically is not severe enough to cause measurable functional impairments that keep you from working. But if your doctor believes that it does, you can apply to get your loans forgiven due to ADHD.
The Social Security Administration maintains a list of adult impairments, any of which could qualify you for disability discharge.
What loans qualify for TPD Discharge
All federal student loans are eligible for discharge due to disability, including:
- Direct Loans
- Federal Perkins Loans
- Federal Family Education Loans (FFEL)
For private student loan debt, contact your lender to learn if they’ll forgive your loans due to disability.
Automatic Forgiveness Due to Permanent Disability
The U.S. Department of Education announced it would provide automatic TPD discharges. Starting in September 2021, borrowers no longer have to submit a TPD application. Instead, the Department will use a data match to identify borrowers listed in the Social Security Administration’s system as having a qualifying disability rating. Borrowers who qualify for loan cancellation should get notice of their approval for discharge before the end of the year.
This announcement echoes the relief previously granted to veterans under the Trump Administration.
In addition to removing the application barrier, the Department announced it would:
- no longer ask borrowers to provide information about their current income
- pursue eliminating the three-year monitoring period
Borrowers seeking disability discharge based on a physician’s certification do not qualify for this automatic forgiveness.
Taxes on Student Loan Forgiveness Due to Disability
Some borrowers may owe federal taxes if their student loans are forgiven due to disability.
You may owe taxes if: you received the TPD Discharge before January 1, 2018.
You will not owe taxes if: your loans are forgiven from January 1, 2018, through December 31, 2025.
The federal government passed two laws that prevent the IRS from treating student loan forgiveness due to permanent disability as taxable income until at least January 1. 2026:
- The Tax Cuts and Job Act
- The American Rescue Plan Act
Note: Both Acts apply only to federal tax liability. You may still owe state taxes for any amount forgiven.
How to Determine Discharge Date
The date you’re considered to have received the discharge depends on how you qualified for relief.
- VA Determination: Your discharge date is the date the Department approved the discharge.
- SSA and Physician’s Certification: Your discharge date is at the end of the three-year monitoring period.
During the coronavirus pandemic, the Biden Administration announced it would be waiving the reporting monitoring requirements. It remains unclear what impact that has on the discharge date for disabled borrowers.
How to apply
After the announcement by Department of Education Secretary Miguel Cardona, the only borrowers who would need to apply for the disability forgiveness program are those who are relying on certification from their doctor. The Department will automatically forgive the loan balances of eligible veterans and SSDI recipients after its quarterly data match.
Having said that, if you need a determination sooner, you can start the discharge process by visiting disabilitydischarge.com. That website, which is administered by Nelnet, allows you to apply online or by submitting a paper discharge application.
You have four options to submit the application:
- Mail: US Department of Education, PO Box 87130, Lincoln, NE 68501-7130
- Fax: 303-696-5250
- Email: DisabilityInformation@Nelnet.net
- Online: https://secure.disabilitydischarge.com
The application process often takes less than 30 days to complete.
Disabled borrowers can check the status of their application by contacting Nelnet at 888-303-7818. Customer service representatives are available Monday–Friday from 7 am to 2 am EST and Saturday from 8 am to 7 pm EST.
You can also email the loan servicer at DisabilityInformation@Nelnet.net.
Download Total and Permanent Disability Discharge Application PDF
What happens after TPD Discharge?
If your application is approved based on a physician’s certification, you’ll be subject to a three-year post-discharge review. During that review period, Nelnet will review:
- your annual earnings from employment
- your receipt of new federal student loans or TEACH Grant
You’ll also need to notify the servicer if:
- your income exceeds the Poverty Guideline amount for a family size of two for your state (no matter your actual family size)
- your contact information changes
You’re not subject to this review following the recent policy changes under the Trump and Biden Administrations if your discharge was granted based on SSA or VA documentation.
The easiest ways to proof your income during the 3-year monitoring period is to provide a copy of your tax return, W-2, or Social Security benefits award letter. You can get that letter at ssa.gov.
What happens after the 3-year post-discharge monitoring period?
After the period ends, your loans will officially be discharged. You’ll no longer need to report your income or update your contact information. Your credit report will be updated to show you no longer owe the discharged loans. However, any negative information will remain. Plus, you still will be unable to borrow new federal student loans under any loan program unless you meet the exception discussed below.
Student Loan Disability Discharge Credit Report Update
Once you receive a discharge due to disability, your credit report should state that you no longer owe the student loans. However, the history can remain on your credit report for up to 7.5 years. Also, the Consumer Financial Protection Bureau has said that the credit bureaus can keep your loans on your report during the three-year review period (if you’re subject to one).
Will I get a refund?
Eligible borrowers will receive a refund of payments made after the date Nelnet receives:
- SSA Documentation
- Certification from your physician
- notice of the effective date of the disability determination from the U.S. Department of Veterans Affairs
You’re not eligible to receive a refund of payments made before those dates.
Can I borrow new Federal Student Aid after getting a discharge?
Typically, you’re ineligible to receive a new Direct Loan, Perkins Loan, or TEACH Grant if you received a discharge due to disability. However, there’s one exception:
- you obtain a certification from a physician that you can engage in substantial gainful activity; and
- you sign a statement acknowledging that the new loan or TEACH Grant service obligation cannot be discharged in the future based on any injury or illness present when the new loan or TEACH Grant is made unless your condition substantially deteriorates so that you are again totally and permanently disabled.
Have a disability and student loan debt? Let’s talk.
Trying to balance making your student loan payments and caring for your health is challenging. I’m here to help. I save clients the stress of trying to figure out their options to tackle their student loan debt so they can focus on overcoming their disability and improving their qualify of life.
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