If you have federal student loans, you may be eligible to have your loans canceled through a “total and permanent disability” (TPD) discharge. A discharge means that you don’t have to repay the loans (with some exceptions—see below).
Which loans are eligible for discharge?
You can get a TPD discharge for William D. Ford Federal Direct Loan Program loans, Federal Family Education Loan (FFEL) Program loans, Federal Perkins Loans, or Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligations. Other loan programs and private loans have their own discharge rules.
Who is eligible for a discharge?
The rules for a federal TPD discharge are similar to Social Security’s eligibility rules, but are even more difficult to meet. Being approved for Social Security disability benefits does not necessarily mean that you will be approved for a TPD discharge.
For a TPD discharge, you must be unable to do any “substantial gainful activity” (work involving significant physical and/or mental actives) because of a medically determinable physical or mental impairment that has lasted 60 months, can be expected to last for 60 months, is expected to result in death, or is due to a 100% military-service-connected disability.
There are two differences between this definition of disability and Social Security’s definition. First, Social Security requires that your inability to work last, or be expected to last, only one year, not five years. Second, Social Security doesn’t automatically grant disability for service-connected disabilities.
However, those who receive a Social Security disability award with a five-to-seven year review date, meaning that they are classified in a group called “Medical Improvement Not Expected” (MINE), should automatically qualify for a federal loan discharge.
If you do not qualify for Social Security or Veteran’s disability benefits for technical reasons, you can still qualify for a TPD discharge if your doctor certifies that you are totally and permanently disabled, and that your disability has lasted continuously for five years, is expected to continue for five years, or could result in death. The physician who certifies your TPD discharge application must be a doctor of medicine (MD) or doctor of osteopathy/osteopathic medicine (DO) who is licensed to practice in the United States.
How do I apply for a discharge?
If you are currently receiving disability benefits from Social Security, you no longer need to apply for forgiveness for your federal student loans. The U.S. Education Department will do a data match with the Social Security Administration (SSA), and those already receiving disability benefits will automatically have their loans forgiven.
If you are not receiving disability benefits from the SSA, to apply for a TPD discharge you must complete a TPD Discharge Application. Your doctor has to fill out a section of the application stating your diagnosis, the severity of your condition, and the limitations caused by your condition. You submit the application to your loan servicer; you must submit an application for each loan holder.
Are there any negative effects of applying for a discharge?
You will have to jump through a few hoops to get federal student loans in the future, and if you request a new loan within three years of your discharge, you will have to resume payments on the discharged loan.
All discharges are now free from federal taxes (until 2025 when Congress will consider renewing the tax provision), but your state might tax you on the amount of the discharged loans. (Contact your state tax office for more information.)
As of March 2021, you are no longer subject to a three-year monitoring period during which your income is monitored. In the past, if you earned over a certain amount of income during the three years after your discharge (not counting disability payments), your obligation to repay the loan could be reinstated. (The level of income allowed was your state’s poverty guidelines for a family of two.) The waiver of the post-discharge monitoring period is expected to remain in place until the end of the COVID-19 emergency relief period on January 31, 2022. The post-discharge monitoring period does not apply to veterans who are 100% disabled.
By: Devon Brady of Premier Disability Services, LLC®