Being in debt is a stressful condition. Lacking the money to repay the debt and dealing with the pressuring lenders can make the situation even worse. Thankfully, the government provides several forgiveness opportunities for debtors to partially or fully eliminate their obligations. One of such programs is the Disability discharge. Borrowers with a total and permanent disability can take advantage of this program to get 100% rid of their debts. While the Discharge is the solution for many disabled borrowers, it is not easy to receive. There exist some requirements which can be complicated for the debtors. Hence, in this guide, we will dive into the discharge process and explain every tiny detail of the application.
The disability discharge program helps debtors with total and permanent disabilities to get rid of their obligations. The program covers debt types such as Direct, Federal Family Education, or Perkins loans. Besides, if a debtor has a TEACH Grant obligation, Disability discharge relieves the borrower from completing the mandatory service. However, before getting the cancellation for the loans or the grant service, applicants should supply essential information about their disabilities. Next, the Department of Education will assess the applicant’s details and decide if he/she is eligible for the Discharge.
In general, Disability discharge requires some effort for application. Borrowers who want to apply this program should read the eligibility and application process carefully. Besides filling out the application form, debtors need to submit the necessary documentation to prove their conditions. However, sometimes, the Department of Education already has information about their disabilities. Hence, in those cases, there is no need for additional documents. We will discuss exceptional circumstances in detail in subsequent sections.
In the application process, the Nelnet loan servicer deals with the applications to support the U.S Department of Education. When there is a need to communicate with borrowers on behalf of the Education Department, Nelnet notifies debtors about requests. Also, applicants should mail their form and documents to the Nelnet.
We broke down all necessary elements of the Disability discharge program in this article. From the eligibility criteria to different application methods, we simplified the unclear information as much as possible. However, many people still have a hard time to check their qualifications or decide which way to choose for an application. Every year, thousands of debtors lose their opportunities for forgiveness programs because of technical mistakes in the documentation or failure to meet the eligibility requirements.
If you want to maximize your chance in the discharge application, we recommend you contact us. We gathered industry experts with years of experience in debt management and student loan issues. Hence, our specialists can review each client’s case individually and recommend a suitable solution to your problems. If you do not qualify for the Disability discharge, we will also consider other programs you might be eligible for, such as Teacher Loan Forgiveness and the PSLF. With Student Loans Resolved by your side, you will make more informed decisions and fully exploit them.
How to Prove Eligibility?
As mentioned before, applicants should provide a document proving their disabilities. Debtors can get this document from one of the three sources.
Veterans Affairs Documentation
First, some applicants can get their documents for disability from Veterans Affairs. Luckily, the Department of Education regularly communicates with the VA to identify eligible for the Disability Discharge. Hence, if a veteran has a service-connected disability, he/she will receive a letter from the discharge program about eligibility. In this case, the veteran does not apply for the program in the first place; instead, the ED/Nelnet gets information from the VA and contact with the disabled person directly. Here exist two qualifying elements to determine if the debtor is totally or permanently disabled. First, the service-connected disability should entirely – 100% disable the individual. Alternatively, if the borrower has a total disability based on the unemployment rating, he/she will qualify for the disability discharge.
What Should I Do if I Receive the Letter?
If borrowers receive a letter notifying their eligibility for a disability discharge, they should first decide whether they want to benefit from this program. In case applicants want to discharge their debts, they do not need to take any action. The discharge process is automatic if the borrowers do not declare they do not wish to receive financial aid. Therefore, people who want to get their loans or TEACH grants discharged do not need to take further action.
In case the borrower does not reject the eligibility for Discharge, the loan servicer will move on to inform the loan holders or TEACH Grant service obligation to eliminate the loan or service requirement of the disabled person. In short, if you receive a letter, forget about the application form and documentation for disability; wait for your obligations to get discharged.
I have not Received the Letter…
Some applicants might think that they qualify for a disability discharge, but they have not received any automatic loan cancellation letter. In this case, the applicant can submit the application form and documents from the VA showing the disability. Please, keep in mind that the record only qualifies if there is effective data indicated about the VA’s determination.
Social Security Administration Documentation
The second method for disability documentation is getting it from the Social Security Administration (SSA). Similar to VA’s case, Nelnet also regularly contacts the SSA. Hence, if the SSA informs an individual with Social Security Disability Insurance or Supplemental Security Income, Nelnet will notify this person about the eligibility. One more condition for eligibility, in this case, is that the SSA should note that the next review of the disabled individual will be in five to seven years after the most recent disability determination. If all necessary information is supplied, the loan servicer will contact the borrower and explain the application’s future steps. While the debtor still needs to apply for the Disability discharge, there is no need to submit the additional documents for disability as the loan servicer already has it from the SSA.
The borrowers who meet the eligibility criteria, but receive no information from the loan servicer, can apply for the Disability discharge. If they have a total and permanent disability and the next review will be in five to seven years, they can provide the discharge consideration documentation. The documents can include the SSDI award, SSI, or Benefits Planning Query from the Social Security Administration.
The last alternative for the disability documents is getting a certificate from a doctor of medicine or osteopathy. However, these people should be appropriately licensed in the states. They should note that the borrower cannot have a gainful activity because of physical and mental disabilities. These conditions can result in death or are expected to continue more than sixty months. Alternatively, the condition can have lasted for the same period. If the case of the applicant satisfied one or more of these requirements, the borrower would have a high chance of receiving the Disability discharge.
Application for the Disability Discharge
If borrowers are eligible for the discharge opportunity, they can contact Nelnet, the loan servicer, through email or phone. Besides, applying online is also possible. When the Nelnet is informed about the individual’s case, it takes several actions. First, they share the instructions for the applications with the borrowers. Second, they check if the applicant has a student loan or TEACH grant obligation that qualifies for the Discharge. Lastly, they inform the loan holders to stop the collections for 120 days. During this time, the applicant does not need to repay the debt. The loan servicer aims to aid people who wish to apply for a discharge program to have enough time to collect the documents. If the Nelnet still does not receive the borrower’s documents and application form, they will stop the suspension period. In this case, the loan holders will resume the collection of the payments.
Application Process in Details
Borrowers need to supply the discharge application and supporting documents to the U.S Department of Education for consideration. Depending on the application’s way, a debtor might attach additional documents to prove the disability or ask the physician to fill Section 4 in the application form. When all requirements are ready, the applicant should mail the documents to the loan servicer.
People who receive the letter about their eligibility before application, do not need to submit the disability-related documents. In these cases, the loan servicer gets the records from the Social Security Administration or Veteran Affairs. The Disability discharge program’s ease is that the loan servicer works closely with the other organization to determine qualifying applicants. Such borrowers only need to sign and put a date in section three of the application and mail it to the loan servicer. We will discuss the application process step by step in the following section.
How to Get the Application Form?
Debtors who want to apply this forgiveness program can get the application form in three forms. First, applying online is possible. Once the applicants answer the questions, they will get the incomplete application form in PDF. Next, they can download and print the document to complete section three, which requires sign and date. If the applicants have VA or SSA documentation, they should attach the disability proofs and mail it. In the case of Physician certification, they need to ask the doctor to fill the section four.
Another strategy is printing a blank application form and manually filling the whole form – from section one to three. Later steps are the same as the online application process. Lastly, if the borrower cannot get the form online, he/she can contact the loan servicer by phone or email to ask for the discharge paper. Once debtors receive the application form, they need to fill the section one to three and attach additional documents. Again, in a Physician document, there is no need to submit an extra paper. Instead, the physician will fill section four in the application form.
After filling the form and attaching documents, if required, applicants can send them through the mail, fax, or email.
In some cases, the borrower cannot deal with the application process alone. They can get the help of their relatives or friends as representatives for the case. However, they need to designate the representative through the documentation. Filling the Applicant Representative Designation form is a must in this case. Once the Nelnet receives the form, they will start working with the representative on behalf of the debtor. Also, even the borrowers with a power of attorney for the representative should still provide this form.
Process after Application
Once the Nelnet receives the application form, they will contact the loan holders to stop the collection process. The borrower does not need to repay a penny while they wait for the review process to end. During this time, they will check the eligibility of the applicant. The application form and the necessary documents should be complete to get approval. However, the case for the people who deal with student loan defaults can be different. While the Nelnet reviews the application, the collection of payment from wage garnishments or Treasury Offset can continue. If the borrower receives the approval, the collection will be ceased immediately.
Finally, when the Nelnet determines the eligibility, they will notify the Department of Education about the decision.
Post-Application Process in Case of VA Documentation
After the Department of Education approves the request, they will contact the applicant about the results. Besides, they will inform the holders of the loans or TEACH grant about the favorable decision. In this case, the holders need to stop the collection. Also, they will return the amount paid on or after the effective date of the disability. Therefore, the disability date needs to be on the VA’s documentation. This date is when the applicant has a service-connected disability that fully impairs the borrower or when he/she gets an unemployment rating.
If the Department of Education decides to reject the application, the borrower will receive the negative result by mail. Besides the final decision, they will also note the reasons for the rejection and how the applicant can re-apply for the disability discharge. Moreover, they will inform the loan holders to resume the collection as the loan forbearance period ends.
Post-Application Process in Case of SSA Document or Physician Certificate
Whether the ED gets the disabled person’s documents from the applicant or the documenting organization, they will review the case and make the final decision. If the borrower is eligible for approval, the loan servicer will inform the loan and grant holders. In this case, the loan holders will refund the loan payments made after the disability date. Here the disability date is the time when the loan servicer receives the documents such as SSI benefits or SSA notice.
After the applicant is informed about the approval, the loan holders will transfer the debt to the servicer to discharge the obligation. Keep in mind that the successful applicant will still be under the three year monitoring period from the date of Discharge. If, during these three years, the applicant ceases to meet the eligibility criteria, the debtor will be obliged to repay the discharged amount. Besides, one more factor is essential if an applicant gets a positive answer to the request. If the borrower requests to get a new loan and TEACH grant before receiving the Discharge, the Department of Education will change its denial decision. Hence, the applicant will not get rid of the debt as loan holders will require the payments.
The denial process is similar to the case of an application with the Veteran Affairs documentation. In short, the applicant will get a mail informing the denial, and the loan holders will continue the collection.
What if I need a New Loan or TEACH Grant?
Unfortunately, if the borrowers take advantage of the forgiveness program for the disabled people, they are able to request a new Perkins, Direct loan, or TEACH Grant. However, there is an exception to this case. If the borrowers get a certificate from the physician that they can work- do gainful activity- they can get a new funding source. Such a situation can happen if the applicant recovers to the degree that they can get employment. Besides receiving a certificate, the borrowers should declare that they will not request a discharge for illness or injury for these loans or grants unless their conditions deteriorate to a degree of total and permanent disability.
As mentioned before, when applicants receive an SSA document or Physician certificate during the application, they will be under three-year monitoring after the Discharge. In this case, if they declare that they can work from now on to get a new loan, they will lose the previous Discharge, too. Hence, the borrowers will again be obliged to repay the old loans or fulfill the TEACH grant obligation before requesting a new funding source.
More about 3-Year Post-Discharge Period
A three-year monitoring process is only applicable when the borrowers provide an SSA document or Physician certificate in the application process. The debtors who submit the VA’s documentation to show the disability for employment are not subject to the monitoring period. During this period, there can occur conditions that reinstate the payment obligations for which the Discharge was received.
When the Discharge can Become Ineffective?
First, if the applicant has annual employment earning, which is higher than the poverty guideline amount for a family of two in the state, then the Discharge becomes ineffective. Here, the actual size of the family does not matter. Currently, the annual earning for two persons in the family is $17,240 in the states, $21,550 in Alaska, and $19,830 in Hawaii. Having a higher income can lead to the cease of the discharge status on previous loans.
Second, when the applicant gets a new loan, such as Direct, or Perkins, or a TEACH grant, the Discharge will not apply to the previous debt and obligations.
Third, receiving a loan that the debtor applied before the Discharge, can risk this debt forgiveness program. If the borrowers do not ensure that they will return the whole debt within 120 days after the disbursement, they will lose the discharge approval.
Lastly, recovering from the total and permanent disability will raise the discharge status. In this case, the applicant will get a notification from the SSA that they reviewed the individual’s conditions and decided that he/she is not totally disabled. Plus, if they note that they will not review the case in five to seven years, the debt will be reinstated.
What are the Poverty Guidelines?
Understanding the Poverty Guidelines and checking it is necessary to ensure that the applicant meets the discharge program’s requirements. Poverty Guidelines, which can be found online in the U.S Department of Health & Human Services, indicate families of different sizes’ annual earnings. The numbers in this guideline are estimated annually. If borrowers who took advantage of disability discharge are on three-year monitoring, they need to check the numbers once in a year. The general rule is that the discharged applicant’s income should not be higher than the earnings of families with two members. One can wonder what happens if the family size of the borrower is larger than two people. Unfortunately, there is no exception for the size. No matter how many members the family has, eligibility is checked with the income of the family of two.
Poverty Guidelines only consider income from employment activity. If the applicant gets a wage or has self-employment, there can be a risk of losing the discharge status on previous debt. The monitoring requirements do not calculate the applicant’s earnings from the Supplemental Security Income, Child Support, Retirement Plan, or Unemployment Benefit as an eligible income. Besides, if the applicant’s spouse earns income, it also does not count for the poverty guidelines.
Obligations in the Monitoring Period
Debtors who receive the disability discharge with SSA or Physician documents have several commitments to the Department of Education. First, they should inform the organization if they earn more annual income than the Poverty Guideline amount. Besides, if the ED requests that the applicants need to submit the income documentation, they have to supply the necessary information. Second, if the applicant changes the address or contact number, they should notify the ED. Lastly, when the SSA reports that the applicant is no longer totally and permanently disabled, the ED must be aware of this change.
What Happens if the Debt is Reinstated?
Sure, reinstatement is not desirable as the debtors will be obliged to continue repaying their loans. However, the good news is that they do not need to pay the interest accumulated during the discharge period. If the debt is reinstated, the applicant will receive a mail about the change in decision. This notice will cover information such as the reasons for reinstatement, the due date of the first payment, and how the borrower can contact for further questions. Please, keep in mind that the due date is not earlier than 60 days after the debtor receives the notification. Besides, if the reinstatement happens on the incorrect ground, the borrower can contact through the details mentioned in the letter to express their concern.
Taxability of the Discharge
Some people might be interested in whether they will pay taxes on the discharged amount or not. Disability discharge is complicated when it comes to taxes. Generally, applicants who receive the Discharge in the period between January, 2018 and December, 2025 do not need to pay taxes. In contrast, getting the Discharge before January, 2018 requires paying taxes under the Internal Revenue Services rule.
However, what makes it complicated is the date of the Discharge. This date can be different depending on the way the applicant got the debt discharged.
Borrowers who applied by using VA documentation receive the discharge status on the date of approval. Therefore, the approval date is necessary to check whether the forgiven amount is taxable or not. However, if people use an SSA document or Physician certificate, they will be subject to a three-year monitoring period. Hence, the date of Discharge is not at the same time with the approval. Instead, the end of the post-monitoring period (three years later) is considered for tax purposes.
For example, if an individual got the approval in 2016, and three-year monitoring ended in 2019, he/she will not need to pay the taxes. Although 2016 falls in the category of taxable Discharge, forgiveness in 2019 does not require paying taxes. What is important is the end date of post-monitoring, which is 2019. In short, the applicant should not pay the tax for taking advantage of the disability discharge in this case.
What about the State Tax?
The rules mentioned above are only applicable for federal tax purposes. Unfortunately, the requirements for state taxes can be different. It means the applicant might still be obliged to pay the state tax even though he/she is free of the federal tax. Therefore, it is better to check with a tax professional or state tax office if the Discharge is the case. They will inform the debtors whether they need to file the tax or not.
Can I Work and Be Qualified to Discharge at the Same Time?
Working while receiving the discharge benefit is possible. As mentioned before, the three-year monitoring period checks if the applicant earns enough money to repay the debt. If the borrowers’ income levels are adequate to pay the debt, they will lose the discharge status.
However, earning less would not cause you to repay the debt. The officials check the income level by comparing it to the annual earnings of the family of two. The applicants can find this information in the Poverty Guidelines. If your annual income is still less than the earnings of a family of two, there is no risk for the loan discharge.
Can I Re-apply?
Once the applicants receive the rejection, they can contact the loan servicer to express their concerns. If the problem is a technical mistake, or a doctor’s failure to fill the form correctly, applying again can be the case. The applicants can also find the reasons for the denial in the letter.
Can I Get the Discharge if My Disability Does not Let me Work?
The case can be different depending on the conditions of the applicants. As mentioned, the applicant is only eligible if he/she has a total and permanent disability. If they cannot work in their trained work due to the disability, it does not mean that they will be eligible. If the disabled person can work in a different position, there is a high chance that the Discharge will be rejected.
I am not Qualifying…
We understand that the rules for disability discharge are demanding. Unless the applicant is totally and permanently disabled, they will not benefit from this forgiveness opportunity. After reading the article, if you think you are not eligible for this discharge program, do not lose your hopes. There still exist many programs, such as Public Service Loan Forgiveness or Perkins Loan Discharge. You can check whether there is a program suitable for you by reading our other articles. Alternatively, if you want to save time and ensure your eligibility, you can contact Student Loans Resolved directly. Our specialist will ask you some questions to identify your financial problem and recommend a viable custom solution. We will also help you through each stage of the application to eliminate misunderstandings or technical mistakes. It is our goal to guide debtors in their challenging times. Let us be your guiding light.