The Trump administration launched a new initiative to help disabled veterans with their student loan debts. It aims to simplify the student loan forgiveness process and proactively reach out to veterans about their options. Under this new initiative, the Department of Education will use the National Student Loan Data System and the Department of Veteran Affairs database to identify veterans with federal student loans. It will send those veterans a customized letter explaining Total and Permanent Disability (TPD) discharge, its qualifications and an application for discharge program. The discharge program builds on an effort started during the Obama administration to support severely disabled Americans. The U.S. Department of Education will cooperate with the U.S. Department of Veteran Affairs to help simplify the process for disabled veterans to have their student loan forgiveness.
How will the program work?
The Education Department will launch a computer matching program to identify disabled veteran borrowers on the NSLD System with federal student loans or grants through the Teacher Education Assistance for College and Higher Education (TEACH) Program, which are converted to student loans. The aim is to distinguish disabled veterans from the Veterans Affairs Department who have federal student loan debt from the Education Department.
In 2016, the Education Department co-operated with the U.S. Social Security Administration to identify borrowers with disabilities who were qualified for permanent discharge.
Estimations show that there are 387,000 borrowers with disabilities, with collectively owed over $7.7 billion in federal student loan debts. About half of those borrowers were in default on their student loans and were evidently not aware of the student loan forgiveness programs. According to the Veteran Affairs Department, more than 800,000 severely disabled veterans are unemployable due to a service-related disability. The Education Department and Veteran Affairs hope to raise awareness about TPD Discharge and help more veterans qualify for forgiveness.
What is Totally and Permanent Disability Discharge?
The Totally and Permanent Disability (TPD) Discharge program is launched for former military personnel with total and permanent disabilities that resulted during military service. However, the program applies to anyone with similar challenges that make their ability challenging to repay student loans.
The Department of Education outlines a total and permanent disability as a physical and/or mental impairment that has continued for over five years, one that will likely to remain for that period, and/or a disability that could result in death.
To be eligible for a TPD Discharge you will need to receive documentation from the Department of Veterans Affairs. By these documents should prove your disability and confirm unemployable status. Besides, you will need to have one of these student loans for eligibility: A Direct Loan, a Federal Family Education Loan (FFEL), a Federal Perkins Loan.
It’s a good idea to begin filling out an application as soon as possible if you meet all the requirements. That way, you can avoid the added pressure of missing your payments, going into default, or missing an opportunity to have your debt erased for good.
Once the Department of Education approves your application and discharge your loans, it will notify lenders of your status. What’s more, if you’ve already made payments after your effective disability date, your lenders will be required to refund you on any payments made on or after this date.
Who is eligible for TPD Discharge?
According to the estimations of the Consumer Financial Protection Bureau, tens of thousands of disabled veterans may not be aware that they are qualified for student loan forgiveness program.
Borrowers that considered totally and permanently disabled have been eligible to federal loans forgiveness, since the formation of the federal student loan program.
There are three ways you can prove you are totally and permanently disabled if you:
- are a veteran with a disability, you can apply to the Veterans Affair department confirming your unemployable status because of a service-related injury.
- get Social Security Disability Insurance or Supplemental Security Income, you can submit a notice of your benefits to the government.
- can get a certification from your physician proving you are completely and permanently disabled. They must certify you’re unable to work because of a physical or mental impairment.
No federal income taxes will apply
Ere the new tax law, any outstanding balance was taxable even if the TPD Discharge program forgave it. This means that even though your loan debt was wiped out by the government, you would still need to pay taxes on the forgiven amount the next year. And for some veterans, this ended up costing thousands of dollars.
Here is the good news! Under the new tax law, disabled veterans will not owe any federal income taxes on discharged student loans. All changed with the Congress’s reforms to the tax code made last December. Borrowers whose student loans are forgiven on or after Jan. 1, 2018, due to TPD Discharge no longer have to pay federal income taxes on those forgiven loans.
Congress passed the $3.1 trillion spending bill known as the Tax Cuts and Jobs Act.
As of January 1, 2018, anyone who is approved for a TPD Discharge will no longer have to pay federal taxes on forgiven loans. Anyone approved for the program before the start of this year is still required to pay taxes.
Once you’ve filled in the application form, you must:
- either attach supporting documentation confirms you are permanently and totally disabled;
- or have your physician fill out Section 4, depending on your circumstances.
You’ll mail your application form and any other supporting documentation to the following address:
- U.S. Department of Education, P.O. Box 87130, Lincoln, NE 68501-7130.
Student loan forgiveness is applied to only federal loans
One important thing you should know that only federal student loans are eligible for a TPD Discharge. If your loans are private student loans, they wouldn’t be eligible.
Some private loan lenders offer loan forgiveness for people with disabilities. Sallie Mae, Discover, and Wells Fargo will defer your loan balance if you’re completely and permanently disabled. To check if your lender offers loan discharge, contact your loan servicer directly.
If you’re qualified for the discharge program and you would like to have your debt forgiven, you may begin the TPD Discharge application process now or wait until you are contacted by the Veterans Affair Department or Education Department through the mail.
Those who are not eligible for the discharge program can also apply other student loan forgiveness and repayment options for military personnel that offers great advantages and often come with lower monthly payments.