When you take out student loans, you trust that you’ll eventually make enough money to pay them back. But what if you’re struck by a sudden illness or are involved in an accident that leaves you unable to work? That’s where student loan disability discharge come in.
You may already be aware that this form of relief is out there, but the good news is that it’s become more accessible than ever before, not to mention tax-free (for some, at least). Here’s what you need to know about the student loan disability discharge.
Student loan disability discharge: requirements
If you’re a federal student loan borrower facing long-term disability and can’t work, you may be eligible for student loan forgiveness through Total and Permanent Disability discharge (TPD).
Nelnet assists the education department with this program. To be eligible, you’ll first have to demonstrate that you are totally and permanently disabled. You can do that in one of the following ways:
1. If you are a veteran: Submit documentation from the Department of Veterans Affairs (VA) showing that you are unemployable due to a service-connected disability.
2. If you are receiving federal benefits: Submit a Social Security Administration (SSA) notice showing that you are receiving disability insurance or Supplemental Security Income and that your next scheduled disability review will be within five to seven years.
3. If you’re otherwise disabled: Submit certification from a physician proving that you are totally and permanently disabled, meaning that you suffer a physical or mental impairment that meets the following criteria:
- It has lasted continuously for at least five years or could last for the next five years.
- It could result in death.
Private student loan forgiveness due to disability
If you borrowed from a bank, credit union or another private lender, your access to loan forgiveness, even in cases of disability, are likely more limited. However, some lenders — such as Sallie Mae and Discover — will forgive your remaining balance in the case of a disability or death.
If your lender offers this option, be prepared to provide documentation of your disability. Each lender will have a unique application process and qualifying criteria.
Applying for federal student loan forgiveness for disability
If you think you meet the requirements of TPD and want to apply for student loan forgiveness due to a disability, contact Nelnet about your options. You can call them at 888-303-7818 or email them at [email protected] You can also fill out an application or have someone complete it on your behalf.
When applying for student loan forgiveness through TPD, you’ll be provided with the info you need to fill out the application. Nelnet will then check to see if your loans are eligible for forgiveness. Finally, they will contact your loan holders and notify them that loan payments should be suspended for 120 days.
At that point, you’ll be informed you can stop making payments and should fill out the application and submit it for processing. If you do not hand in your application within 120 days, your student loan payments will resume.
Once you’re finished with your application, you can send it along with any supporting materials to:
U.S. Department of Education
P.O. Box 87130
Lincoln, NE 68501-7130
Applications are typically reviewed within 30 days. If you’re approved for disability discharge due to SSA documentation or certification from a doctor, you will be subject to a 3-year review period that starts on the date that your discharge is finalized and approved. During the review period, your income and any changes in your status will be monitored.
If you receive approval for the discharge based on a VA determination, you will not have to take part in a three-year review period.
What to keep in mind about student loan forgiveness for disability
Though student loan forgiveness disability discharge can be a lifesaver for those unable to work and make payments on their student loans, there are a couple of key factors to keep in mind.
Your discharge could be revoked
Once you’re approved for a TPD discharge — and even after you receive it — it could be voided if you fail to meet certain standards during your three-year monitoring period (if you have one).
Your loan balance could reset, for example, if you earn an income above the federal poverty guideline or don’t recertify your earnings annually with Nelnet. The same thing would occur if you return to school and borrow a new federal student loan.
Also, borrowers who are found to be no longer permanently disabled within the three-year window could lose their discharge.
Your discharge could be taxed
If you receive forgiveness between 2018 and 2025, you won’t have to fear a big federal tax bill, due to the Trump administration’s Tax Cuts And Jobs Act.
However, if you received a discharge (and the accompanying Form 1099-C from the IRS) in 2017 or earlier, you’ll still be on the hook for a potentially large tax bill.
One group could be grandfathered in under the newest legislation, however: Borrowers who were approved for a TPD discharge in 2015, 2016 or 2017 but didn’t actually receive it until the end of their three-year monitoring period in 2018 or later could be free from Uncle Sam’s grasp.
If you’re unsure of your situation, confirm your discharge award date with Nelnet or consult a tax professional.
Also, if you might qualify for a student loan disability discharge down the road, consider that Congress will have to revisit the provision, as it’s set to expire in 2025.
Regardless of whether your discharge is tax-free in the eyes of the federal government, consult your state government’s tax authorities to learn about how it could affect your state income tax.
Student loan disability discharge, plus alternatives
Dealing with federal and private student loans on top of a long-term disability can be a stressful situation, but there are some options to lessen the burden.
Total disability student loan forgiveness is a great solution, but before you apply, make sure you meet the requirements. If you don’t, consider other loan-management strategies to ease your repayment, including:
- Deferment and forbearance
- Pro: You can suspend your loan payments.
- Con: Interest will accrue on your balance.
- Income-driven repayment (for federal loans only)
- Pro: It will cap your monthly payment at a percentage of your income.
- Con: It will also increase your interest costs.
- Consolidation and refinancing
- Pro: You can group your old loans into one new loan, and if you choose student loan refinancing, you may be able to lower your interest rate.
- Con: If you refinance federal loans (rather than consolidate them), you’ll lose protections like income-driven repayment.
Know that even if you don’t qualify for TPD forgiveness or private lender support, you could still find student loan forgiveness programs that will slash or eliminate your debt balance. And there are other ways of getting debt-free, even beyond forgiveness — check out our guide to student loan repayment for a look at some of your options.
Andrew Pentis contributed to this report.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.