Disabled borrowers can receive total student loan forgiveness! If you’re trying to survive on disability benefits, student loans can be very challenging. Fortunately, borrowers who meet certain disability criteria may be able to avoid repaying their student loans altogether!
You need to know about the total and permanent disability (TPD) discharge!
The Total and Permanent Disability (TPD) discharge process excuses disabled borrowers from having to repay their Direct Loans, FFEL loans and Perkins loans. It can also excuse you from having to complete a TEACH Grant service obligation!
Who qualifies for student loan forgiveness based on disability?
To qualify for the total and permanent disability student loan forgiveness program, you must provide specific evidence depending on your individual situation.
Veterans can simply submit a VA letter stating that they are unemployable.
If you are 100% disabled or receive Individual Unemployability, simply submit your letter from the US Department of Veterans Affairs showing that you have been determined to be unemployable due to a service-connected disability. You should be able to download this letter from the eBenefits system.
Social Security recipients simply submit a letter, too.
You can submit a Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits award letter that states your next scheduled review is 5-7 years from the date of your most recent determination.
If you do not have a letter that doesn’t indicate your next disability review, you will need to contact the Social Security Administration for a Benefits Planning Query letter. This will show you when the next review is scheduled.
You can also apply with a physician certification.
If you do not have a VA or Social Security letter, you can still apply! You will need a statement from your health care provider that you are permanently and totally disabled.
The doctor must write and sign a letter that certifies that you are “totally and permanently disabled.” The doctor must also state that you are “unable to engage in any substantial gainful activity” by reason of a medically determinable physical or mental impairment. Substantial gainful activity means a level of work for pay or profit that requires you to do significant physical or mental activity.
They must also state that your disabling condition meets at least ONE of the following criteria:
- The disability can be expected to result in death.
- The disability has lasted at least 60 months.
- The disability can be expected to last for at least 60 months.
Please note that only a MD (doctor of medicine) or DO (osteopathy) licensed to practice in the United States can fill out these forms.
You may be required to submit additional documentation along with your application.
How do you apply for student loan forgiveness based on disability?
You can complete the application forms online or by printing and filling out the forms. You’ll find the forms you need at DisabilityDischarge.com. Please note that even if you fill out the application online, you will still have to print it out and mail it in.
If you are a veteran or Social Security recipient, you will only need to complete Sections 1 through 3 of the application. Applicants who are using the physician certification will need to have their provider fill out Section 4 of their application.
Once you’ve gathered all of your evidence, you can mail the entire packet to the following address:
US Department of Education
PO Box 87130
Lincoln NE 68501-7130
What happens after you submit your application for student loan forgiveness based on disability?
Once your application is received, all collections activity will be suspended for up to 120 days while a decision is being made. You will not be required to make any payments on any of your loans while your application is being reviewed. Please note that this suspension does not necessarily mean that your application is approved, it just means it is being processed.
The agency will review your application and supporting evidence to ensure that the application is complete. If the application is complete and appears to meet the eligibility requirements, the application will be forwarded to the US Department of Education for a final decision.
It usually takes 30 days or less to complete your application and render a decision.
If your application is approved, your loans will be discharged (forgiven). Any loan holders must return any payments made after your disability date to the person who made the payments. Your loan obligations may be reinstated if you no longer meet the criteria for the discharge within the next 3 years.
If your application is denied, you will receive a written notice with an explanation.
What do I need to know before I apply for student loan forgiveness based on disability?
There are some downsides to this program that you absolutely need to understand before you apply.
You can’t go back to work or school within at least three years. You will be expected to repay any loans that were discharged if you obtain gainful employment or obtain new student loans within a three year period following the discharge.
You will not be able to get student loans again unless you follow specific steps. You will not be able to obtain student loans again unless you certify that you are employable and you sign a statement saying that you cannot get those new loans discharged for your existing disabilities.
You may have to pay taxes on the amount that was forgiven. If the amount of student loan forgiveness based on disability exceeds $600, the amount forgiven will be reported to the IRS on a 1099-C. It will count as income for federal tax purposes.
This can be a blessing or a curse, depending on your circumstances. If you rely on disability benefits and don’t currently qualify for the earned income credit, this income may help you qualify for that tax benefit. However, if your household has other income or no children to get credits on, the additional tax burden may be very damaging.
Regardless, you need to be prepared. If you use VA documentation to apply, you will pay taxes on the discharged amount in the current year that your application is approved. If you use the other two options, you will pay taxes on that amount in the year that you complete your mandatory three-year monitoring period.
It will not affect your Medicare or Medicaid eligibility but it could affect other health insurance plans. Generally, government health care plans will not count the 1099-C income against your eligibility. However, you may find that it affects other health insurance options that are purchased through the Marketplace because it does count toward your overall taxable income.