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, Wells Fargo 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.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|2.99% – 6.44%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 6.43%4||Undergrad & Graduate|
|3.19% – 6.08%5||Undergrad & Graduate|
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
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. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020 and is subject to change.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
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 May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
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 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% 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 June 15, 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 6/15/2020. 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 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 0.2% effective May 10, 2020.