If you’re facing a life-changing disability that affects your ability to work and you have student loans, you might wonder, “What next?”
As of August 19, 2021, the Department of Education announced that they would eliminate the need to apply for Total and Permanent Disability Discharge for borrowers considered disabled by the Social Security Administration (SSA).
Instead, the Department of Education will perform a quarterly match with the SSA database to identify borrowers considered totally and permanently disabled. In 2019, the Department eliminated the application process for veterans considered disabled by the VA.
In addition, borrowers will no longer be subject to a 3 year income monitoring period to verify their continued low income. A GAO report found that 98% of borrowers would had their loans reinstated because of this policy simply had failed to submit their annual income documentation.
Student loan forgiveness disability programs can help, but there are still important things to know. Read on to learn more about what disability discharge is and how to get it.
What is disability discharge?
Disability discharge is when your loans are forgiven due to your disability. If you have federal loans, you can now automatically be considered for Total and Permanent Disability Discharge (TPD). If you have private student loans, getting disability discharge varies.
When your federal loans are forgiven through disability discharge, you’ll no longer have to make payments. Forgiveness is also tax free now due to a change in the tax code. Essentially, you’re wiping out your federal student loan debt. In rare cases, certain individual states could consider forgiven student loans taxable income, but the vast majority of borrowers will not need to worry about this.
Applying for Total and Permanent Disability Discharge
To get a disability discharge on your federal loans, you used to have to submit an application for TPD and submit documentation.
There are 3 ways the Department of Education verifies a disability of a borrower:
- The U.S. Department of Veterans Affairs (VA)
- The Social Security Administration (SSA)
- A physician
The first 2 via the VA or SSA are now automatically processed.
Presumably the Department of Education will continue to require an application for borrowers certifying disability through physician certification.
Disability Requirements for VA and Social Security
For disability through the VA, you must show that you have a disability determination. The disability must be 100% caused by service-related activity, or you must be considered unemployable.
To receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), you simple need to secure a SSA notice of award or Benefits Planning Query showing that your next appointment for a disability determination is in five to seven years (or more).
Disability Through Physician Certification
If you go to a physician, the doctor will need to certify that your disability:
- Is expected to result in death
- Has lasted continuously for at least five years
- Or will last another five years
If you want to pursue disability discharge through physician certification, you can apply for TPD at DisabilityDischarge.com.
Nelnet is the loan servicing department that manages Total and Permanent Disability Discharge. If you have questions, call Nelnet at 1-888-303-7818. Customer service is available Monday through Friday from 7 a.m. to 2 p.m. (ET), as well as Saturday from 8 a.m. to 7 p.m. (ET). You can send an email to DisabilityInformation@Nelnet.net.
Once you submit your application, you’ll receive information from Nelnet about the process. The good news is that you won’t have to make payments during the application review.
Private loan disability discharge
If you have private student loans and are looking for student loan forgiveness disability discharge, the process is a bit different. There are many private lenders. You’ll need to contact your lender about the policy. Before, there wasn’t a clear route for disability discharge for private loans. But the Tax Cuts and Jobs Act changed that. This piece of legislation was approved in December 2017. While it mostly focused on tax cuts, it also had a small part in student loan reform.
To get started, contact your lender to ask about disability discharge and what the steps are for applying. Get your documentation in order and see if you can put your payments in forbearance while figuring out the process. The discharge for private student loans due to disability should be considered tax free.
What you should know about disability discharge
If you’re looking for student loan forgiveness disability discharge, there are several things you should know. You might wonder if getting your federal loans forgiven through disability discharge will affect your SSDI or SSI benefits. Good news — it doesn’t!
Also, from now until Dec. 31, 2025, student loans that are forgiven won’t be taxed under current IRS rules.
This is a huge change. Before, borrowers received a 1099-C form and had to report the forgiven amount to the IRS since forgiven loans were considered taxable income. If you got six figures of debt forgiven, that could result in a hefty tax bill. If you’re already disabled and can’t work to pay back your debt, it would be difficult to pay an unexpected tax bill like this.
However, here’s the caveat: The amount that’s forgiven may still be considered taxable by the state. Borrowers in Arkansas, Alabama, Mississippi, and Pennsylvania should consider contacting a tax professional to get more information.
Changes to the student loan disability discharge will dramatically expand forgiveness
If you’re interested in pursuing student loan forgiveness disability discharge options, start by looking through the eligibility requirements. Once you’ve determined that you qualify, get your preliminary appointments set so you can get the disability designation to have your loans discharged.
With the new negotiated rulemaking process starting in October 2021, it's likely that future student loan borrowers will simply need to secure a disability designation from the VA or SSA lasting at least 5 years to receive total forgiveness for federal student loans tax-free.
This is a major change. If you are a student loan borrower mired in debt and believe you should qualify as disabled, you might need to reach out to an attorney specializing in advocating for disability claims if you struggle with the application process.
At least now you only need to pursue the process with the VA or SSA instead of also with the Department of Education. Obviously given the nature of disability, many borrowers would struggle to submit annual income verification for three years along with navigating an additional bureaucratic application.
Talk to your loan servicer or lender to determine if you still need to make payments or not. Most borrowers could consider placing their loans in a forbearance period while their claims are evaluated, now set to be done on a quarterly basis automatically.
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