The Total and Permanent Disability Discharge program helps disabled veterans to eliminate their debts. It is an excellent opportunity as disabled individuals might not be able to engage in employment activities and pay back their obligations. The officials even try to ease the process and come up with new, innovative solutions so that more disabled people can enjoy a debt-free life. However, this student loan forgiveness for disabled veterans can still be complicated and difficult-to-understand with its extensive requirements and details.
Hence, in this guide, we have answered seven mostly asked questions about loan forgiveness for disabled veterans. Besides, you can check our other articles to find out more about Total and Permanent Disability Discharge.
How Can I Prove My Eligibility?
There exist three ways of eligibility documentation. Disabled veterans can get a document that shows their disability and unemployment issue from the Veteran Affairs, Social Security Administration, and a physician. SSA’s notice of award or Benefits Planning Query is necessary documents for eligibility. If a borrower gets certification from a physician, it should indicate that the impairment can result in death, and it will last at least 60 months. Besides, the physician should be a licensed doctor of medicine or osteopathy serving in the United States.
What Happens after the Approval of Discharge?
Based on the application method, the post-approval process can change. In case of application through VA documentation, a borrower receives an approval letter, and the officials instruct the loan holders to eliminate the debt. Besides, the amount paid after the disability date is refunded. In the case of SSA or physician’s documentation, the previously mentioned steps will be the same. However, additionally, these disabled veterans will be under the three-year monitoring period. During this period, if a borrower does not satisfy the eligibility requirements, he/she will again be responsible for paying back the debt entirely.
Is the Forgiven Debt Subject to Tax?
This question has several answers depending on how and when a borrower qualified for the loan discharge opportunity. The first factor that determines the taxability was the date when a borrower received the discharge. Disabled veterans who got discharged before 2018 might be required to pay federal taxes. Others who discharged the debt after Jan 1, 2018, will not face any tax issues for forgiven amounts.
However, it is crucial to understand how the officials determine the date when the discharge occurred. The veterans who prove the eligibility through Veteran Affairs documentation are considered to receive the discharge when officials approve the opportunity. In other cases- SSA or a physician’s certification- the debtors receive discharge officially at the end of the three-year post monitoring period. Hence, if a borrower used a physician certificate and benefitted discharge in April 2015 will not be required to pay federal income tax. As the three-year post monitoring period ended in April 2018, the date of when the discharge is received falls into the category of non-taxable student loan forgiveness which starts from Jan 1, 2018.
Plus, even if the income is not taxable at the federal level, the borrower might still need to pay the state taxes. Therefore, it is advisable to consult with the state tax office or a tax professional before utilizing this student loan forgiveness for disabled veterans.
What can Cause the Loss of Discharge Status in a Three-year Monitoring Period?
Borrowers in a three-year monitoring period should act carefully, or they will be required to make payments for their student debt. There exist several conditions that can cause loss of discharge status.
- If a disabled veteran starts to earn more than the poverty guideline amount annually, he/she will be responsible for debt payments. The poverty guideline amount is calculated based on the family of two regardless of the actual size of the veteran’s family.
- Getting a new federal loan or a TEACH grant resumes the substantial gainful activity status and requires the borrower to pay back the prior loans.
- If the first disbursement of a loan or grant happened before the discharge and another during the discharge, the borrower must return the disbursement to the loan holder within 120 days in order not to lose discharge status.
- A certification indicating that the borrower is no longer permanently and totally disabled can resume the payments during a three-year monitoring period.
If I Want to Study Again, Can I Take New Loans?
Borrowers who enjoyed the benefits of student loan forgiveness for disabled veterans can still take loans or get TEACH grants to go back to school. However, there exist several conditions to consider. First, the veteran should supply a letter to the school from the physician who confirms that the individual can engage in substantial gainful activity. Second, the borrower should sign a statement. In this statement, the debtors will agree that they will not apply to Total or Permanent Discharge again for the new loan or grant using the grounds of existing disabilities. An exception is applicable if the condition of the disabled veteran deteriorates considerably in the future.
In general, this process is not advisable to veterans who used SSA or a physician’s certification in the application and are currently in a three-year post monitoring process. The reason behind this recommendation is that if they want to get a new loan, they will lose their previous discharge status. As a result, the borrowers will be required to resume payments for the prior loan, too.
Why did I Receive a Discharge Letter without Application?
Automatic discharge is one of the greatest benefits of student loan forgiveness for disabled veterans. The Department of Education partners with the Department of Veteran Affairs and Social Security Administration to collect information about disabled veterans. If they detect borrowers that qualify for Total and Permanent Disability Discharge, they send a notification mail to debtors. Unless a borrower rejects their qualifications, the elimination of debt happens automatically. The debtors have 60 days to decline this student loan forgiveness for disabled veterans. Besides, veterans will have an opportunity to get refunds for their payments after becoming totally and permanently disabled.
The Trump administration signed a memorandum in 2019 to streamline the application process and make it easy for disabled people to get benefits of this discharge opportunity. In this way, a data matching process was established to help find out the eligible borrowers. As a result, more than 22000 veterans received student debt relief worth $650 million.
Can Another Person Represent the Disabled Veteran?
The servicers of student loan forgiveness for disabled veterans recognize that sometimes the borrowers cannot be able to apply or understand the discharge process. Hence, it is allowed to have a representative who can fill and apply the discharge form on behalf of the disabled veteran. However, the representative’s designation form should be sent to Nelnet before the representative starts acting on behalf of the borrower.
Find Out More
Individuals who can qualify for Total and Permanent Disability Discharge are advised to get more information about the program before applying. It has utmost importance to apply properly, because, every year, thousands of applications get rejected due to incorrect documentation. In Student Loan Resolved, we share crucial information about different forgiveness programs, including student loan forgiveness for disabled veterans. Check out our articles or contact our experts now to learn more.