How to Wipe Out Student Loans You Took Out Before You Became Disabled
Tackling student loans is tough enough, but doing it when you have a disability adds another element of stress to an already difficult situation.
However, if you develop a total and permanent disability after taking out federal student loans, you are eligible to have your debts forgiven.
The process for getting forgiveness isn’t easy and can take years to finalize, unless you’re disabled veteran (more about that later).
But if you’re struggling to pay, the discharge of your student debt could be worth your effort. Here’s what you need to know before you apply.
How to Get a Student Loan Disability Discharge
The government isn’t going to wipe out your student loan for a minor car accident — and maybe not even a major one, according to Melissa Opperman, executive vice president at Credit.org.
“If you have a significant disability that can be documented — and I mean documented — sometimes federal student loans can be forgiven,” said Opperman, who noted that you’ll be responsible for providing updated documentation throughout the monitoring period. “If somehow you miraculously heal, then it’s not forgiven.”
Which Loans Are Eligible?
The total and permanent disability discharge (TPD) program is available for the following loans:
Direct Loans (aka William D. Ford Federal Direct Loan Program)
Federal Family Education Loans (FFEL)
Federal Perkins Loans
If any of your loans are in default and the government is garnishing your wages, the garnishment will continue until your TPD discharge is approved.
Additionally, you can apply for the TPD program to forgive a Teacher Education Assistance for College and Higher Education TEACH Grant service obligation.
Who’s Eligible for Disability Discharge?
To qualify for the TPD discharge, you must provide official proof that you are totally and permanently disabled. There are three ways:
Veterans who become totally and permanently disabled during their service automatically have their student loan debt discharged. Prior to August 2019, veterans still had to fill out the TPD Discharge application, but the process recently changed.
Veteran Affairs will alert the Federal Student Aid office as to who are eligible veterans. The office will then notify eligible veterans, who will have 60 days if to decide if they want to decline the loan relief.
Why would you decline? Although the discharge isn’t subject to federal taxes, the discharged amount may still be considered income for state tax purposes. Additionally, accepting the disability discharge could make is more difficult to take future student loans.
If you do not opt out of the program, your remaining student loan balance will be discharged and you’ll be reimbursed for payments made following the date of the discharge.
Social Security Administration
If you qualify for a discharge based on the Social Security Administration’s (SSA) requirements, the agency will notify the Federal Student Aid office.
The office will then send you the determination letter indicating your eligibility as well as a discharge application.
Along with your application, you’ll need to provide a copy of your SSA notice of award or your Benefits Planning Query indicating that your next scheduled disability review is within five to seven years from the date of your most recent disability determination.
A doctor of medicine or doctor of osteopathy/osteopathic medicine who is licensed to practice in the U.S. can certify that you are permanently physically or mentally unable to earn money in any field of work.
How to Apply
To apply for a TPD discharge, you’ll need to submit an application with accompanying documentation to Nelnet, the servicer that assists the U.S. Department of Education with the discharge process.
After you contact Nelnet to request an application, the company will reach out to your loan holders to stop collections for up to 120 days.
This is considered your grace period to give you time to fill out and submit your application and supporting documentation, but if you do not submit your paperwork in the allotted time frame, your lender can resume collection activity.
You only need to submit one TPD application to apply for a discharge of all your federal student loans and TEACH Grant service obligations.
Although the application is eight pages, the form that you are required to fill out is only about half a page, asking questions like your name, date of birth, contact info and Social Security number.
The remainder of the application depends on how you received your proof of disability:
If your determination came from the SSA, you’ll need to attach a copy of that documentation. You also do not need to provide a physician’s certification.
If you are submitting a physician’s certification, your doctor must complete and sign Section 4 of the form.
What If You Need Help Filling Out the Application?
Dealing with all the paperwork can be an overwhelming burden to someone with a disability, so you can assign someone to help with the application.
If you want to designate another person or an organization to represent you, you’ll need to complete the Applicant Representative Designation: Total and Permanent Disability form.
If you don’t have someone you can trust, reach out to a reputable source for professional assistance — and be aware of offers that allow the organization to profit off your misfortune, advised Heather Jarvis, a North Carolina attorney who specializes in student loans.
“There are people who are professional financial advisers or attorneys or who work for non-profit counseling companies who might be able to help,” she said. “They aren’t in the business of trying to make money on people who owe money.”
Once you submit your application via the website, email address, fax number or mailing address listed on the form, Nelnet begins the review process.
What Happens After You Submit Your TPD Application?
Three things will happen after Nelnet receives your application:
Nelnet will tell the holders of your federal student loans or TEACH Grant service obligation to suspend collection activity; you will not be required to make payments at this time. However, if your loans are in default and your wages are being garnished, that will continue until your TPD discharge is approved.
It will review the application and supporting documents.
If you meet the eligibility requirements, Nelnet will forward your request to the U.S. Department of Education for a final decision.
If your application is approved, Nelent will notify you that your loans and/or TEACH Grant service obligation have been discharged.
It will also instruct your lenders to return any loan payments received after the date Nelnet received the SSA documentation or after the date the physician certified your discharge application.
You will also need to agree to a three-year post-discharge monitoring period that begins the date the discharge is approved.
The requirements during that three-year period are as follows:
You must not receive annual earnings from employment that exceed the poverty guideline amount for a family of two in your state (regardless of your actual family size). Nelnet will provide a required form for you to submit documentation of your annual earnings from employment.
You can’t get a new Direct Loan or TEACH Grant or receive disbursements from your current ones.
You must not receive a notice from the Social Security Administration that you are no longer disabled or that your next scheduled disability review will no longer be five to seven years from the date of your last disability determination.
If you don’t meet the requirements during this period, your obligation to repay your loans or complete your TEACH service obligation will be reinstated.
Will You Be Taxed on Your Discharge?
If you receive a TPD Discharge of a loan between Jan. 1, 2018 and Dec. 25, 2025, the discharged loan amount won’t be considered income for federal tax purposes. Any discharges issued before 2018 may be considered income, according to the IRS.
If you receive a Form 1099-C from the IRS, keep it for your records. However, you do not need to include it when filing your federal tax return.
Even if you won’t be taxed by the feds, the discharged loan amount may still be considered income for state tax purposes. Ask you state tax office or a tax professional about your obligation before you file your state tax return.
What If Your Application Is Denied?
If Nelnet notifies you that you don’t qualify for TPD discharge, you will immediately become responsible for repaying your loans and your TEACH Grant service obligation again — your lender will notify you of your first payment due date.
Requirements for private student loan discharges vary by lender. For instance, some will automatically allow a loan discharge if you receive a federal disability discharge.
If you would like to appeal the decision, you can request a reevaluation of your application within 12 months of the denial. You’ll need to provide new information that proves your eligibility.
If you don’t request reevaluation within those 12 months, you must submit a whole new application along with the new proof of your eligibility if you want to apply for the discharge.
Alternative Options to the TPD Discharge
If you are denied or lose your TPD discharge, you still have an option if you are unable to make your federal student loan payments: Income-driven repayment plans.
These plans do not provide immediate relief like a TPD discharge, but they can lower your payments by factoring in your income and expenses:
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Pay as You Earn (PAYE)
- Revised Pay as You Earn (RPAYE)
We detail each of these repayment plans as ways to pay off student debt, but know that these plans aren’t actually forgiveness programs. They’re repayment programs with a forgiveness option at the end.
If you already receive Supplemental Security Income due to a disability and want to go to college, consider applying for the Plan to Achieve Self-Support, which can help cover education expenses.
You’ll need to resubmit your income and family size every year to determine eligibility — and the forgiven portion is subject to federal taxes.
However, if your disability is so severe that you’ll never earn money from a job again, a TPD discharge of your student loans could be worth the fight.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.