When you take out student loans to get your degree, you can only hope that you’ll make enough to pay them back eventually.
But what if you’re struck by a sudden and serious illness? Or are involved in an accident that leaves you unable to work? If you’ve heard the news recently, you know there is relief out there in the form of student loan disability discharge — and it’s being made more accessible to borrowers than ever before.
Student loan disability discharge eligibility requirements
If you have federal student loans, are facing long-term disability, and are unable to work, you may be eligible for student loan forgiveness through Total and Permanent Disability Discharge (TPD).
“A borrower can be discharged from his or her obligation to repay a Direct Loan, FFEL Program loan, or Federal Perkins Loan Program loan, or complete a TEACH Grant service obligation due to total and permanent disability,” explained student loan lawyer, Jay Fleischman.
Nelnet assists the U.S. Department of Education with this program. Traditionally, in order to be eligible for this program, you must first demonstrate that you are totally and permanently disabled.
According to the Disability Discharge website, you can do that in one of the following ways:
1. If you are a veteran, you can submit documentation from the U.S. Department of Veterans Affairs (VA) showing that the VA has determined that you are unemployable due to a service-connected disability.
2. If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination.
3. You can submit certification from a physician that you are totally and permanently disabled. Your physician must certify that you are unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that:
- Can be expected to result in death;
- Has lasted for a continuous period of not less than 60 months; or
- Can be expected to last for a continuous period of not less than 60 months.
However, thanks to a recent move by President Obama in observance of his Student Aid Bill of Rights, the Department of Education is going to send letters to 387,000 people they’ve identified as eligible. Now, these borrowers won’t have to go through the process of proving their disability – they can simply sign the form they receive in the mail and send it back to the DOE.
It’s estimated that this will result in having $7.7 billion in student loan debt canceled for borrowers who may not have otherwise realized they were eligible for this program. Thanks, Obama!
Applying for student loan forgiveness for disabled borrowers
If you aren’t one of the borrowers who receive a letter from the DOE, but think you meet these requirements and want to apply for student loan forgiveness due to disability, contact Nelnet about your options. You can call them at 888.303.7818 or email them at DisabilityInformation@Nelnet.net. You can fill out an application as well.
When applying for student loan forgiveness through Total and Permanent Disability Discharge, you’ll be provided with the info you need to fill out the application. Then, they will check to see if your loans are eligible for forgiveness and finally, they will contact your loan holders and notify them that loan payments should be suspended for 120 days.
During that time, you won’t be required to make payments — but only for 120 days, so you can fill out the application and submit it for processing. If you do not submit your application within 120 days, your student loan payments will resume.
Once you are 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 get approved for disability discharge due to Social Security Administration documentation or certification from a doctor, you will be subject to a three-year review period that starts on the date that your discharge is finalized and approved.
If you get approved for the discharge based on a Veterans Affair determination, you will not have to take part in a three-year review period. During the review period, your income and any changes in your status will be monitored.
The downside of student loan forgiveness due to disability
Though student loan forgiveness disability discharge can be a lifesaver for those unable to work and make payments on their student loans, unfortunately, your troubles may not be completely over.
“For most people, however, the real problem with a TPD [Total and Permanent Disability] Discharge is the potential tax implications,” said Fleischman.
Currently, the U.S. Department of Education reports the discharge of any loan that exceeds $600.00 to the IRS the year the loans are discharged. If your loans are discharged, you will receive Form 1099-C, which will indicate how much of your debt was forgiven.
The amount forgiven will then need to be reported on your tax return and will be considered taxable income.
“Unless you fall into one of the exclusions set forth in the Internal Revenue Code, you’ll need to pay income tax on the forgiven amount. Borrowers who are living on a fixed income may find it difficult – if not impossible – to pay that tax debt,” Fleischman adds.
Before applying for student loan disability discharge, you may want to talk to a tax professional to assess your situation and see if this route is right for you. If it looks like the tax burden will be high, consider going on an income-driven repayment plan instead.
“Many folks with disability have a low income and will qualify for a very low payment,” said Joshua Cohen of the Student Loan Lawyer.
Depending on your situation, your payments could be as low as $0. Income-driven plans can be useful if you’re struggling to make payments.
“These plans come with forgiveness after 20 or 25 years, which allows you to defer any possible tax obligation for decades,” noted Fleischman.
So while income-driven plans do offer student loan forgiveness after a period of time, you’ll still have the taxable income issue at hand – just a couple of decades later.
Also, Total and Permanent Disability Discharge is only available for federal student loans.
Private student loan borrowers who face long-term disability may not be eligible for a complete discharge. It really depends on the lender, but there is not a standard set like there is for federal student loans.
According to the Washington Post, “Only four private student loan providers – Sallie Mae, Wells Fargo, Discover and New York Higher Education Services Corp. – will cancel a borrowers’ debt in cases of permanent disability.”
If you have private student loans and are facing long-term disability, contact your lender regarding the requirements for student loan forgiveness/disability discharge.
Dealing with student loans on top of a long-term disability can be a stressful situation, but there are some options to lessen the burden.
Through total disability student loan forgiveness you could get your federal loans discharged. Before you apply for forgiveness, though, make sure you meet the requirements and are prepared for a potential tax bill. If not, you may want to defer any potential tax obligation and opt for an income-driven plan.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 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 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% 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 Month/Day/Year, 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 08/21/18. 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 firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 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.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|