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Student Loan Forgiveness Disability: Application, Tax Regulations, And More

student loan forgiveness disability

If you have been injured or have a physical condition that keeps you from working indefinitely, you may be able to cancel any student debts you have through student loan forgiveness disability.

Those who have borrowed federal loans may be eligible to have their Title IV federal debts forgiven under new U.S. Department of Education (E.D.) criteria.

The Education Department declared that persons identified as completely and permanently handicapped (TPD) by the Social Security Administration (SSA) would no longer be required to seek for discharge of their federal student debts. Instead, because of a new regulation that allows student loan servicers to match client data with the SSA, borrowers with TPDs will be eligible to claim immediate forgiveness.

1. Student loan forgiveness for disability

Due to student loan forgiveness disability, federal student loans may be canceled. Borrowers seeking a disability discharge must

  • apply for the program
  • and present paperwork demonstrating that they are “completely and permanently handicapped.”

The application will be reviewed by the Department of Education to assess eligibility.

In rare cases, the Department of Education may receive notification from the Social Security Administration (SSA) or the United States Department of Veterans Affairs (V.A.) that a student loan may be discharged due to disability. In such circumstances, the Department of Education may contact a borrower to give information on how to pursue a TPD discharge.

Again, the student loan forgiveness disability program is only available for federal loans such as Direct Consolidation Loans, FFEL Program Loans, and Perkins Loans. Private student debts are not covered by this program.

2. How to get student loan forgiveness for disability?

You can initiate the loan discharge procedure on your own if you are determined to be fully and permanently handicapped. However, the federal government or your loan servicer may also notify you of your possible eligibility and ability to apply for this program.

This is due to information received by the DOE from two other significant agencies: the Veterans Affairs (V.A.) Administration and the Social Security Administration. Both offer student loan forgiveness programs that assist those who have a severe disability that prevent them from working.

You qualify for student loan forgiveness disability if:

  • Because of a service-connected disability, the V.A. has concluded that you are unemployed.
  • Your application for Social Security Disability Income (SSDI) or Supplemental Security Income (SSI) payments is approved by the Social Security Administration.
  •  Your doctor has determined that you are completely and permanently incapacitated.
  • You can begin the student loan forgiveness disability procedure in one of three ways:

2.1 A doctor’s certification

student loan forgiveness disability

The U.S. Department of Education has built a data match with the SSA and V.A. to aid in identifying borrowers who may be eligible for a full and permanent disability discharge.

Unless they opt out, the U.S. Department of Education will soon automate the disability discharge procedure for qualified veterans. The automatic disability release procedure has been postponed due to the necessity for new guidelines from the U.S. Department of Education to allow the transfer.

Your primary care physician or a specialist can certify that you are unable to work owing to medical conditions. To apply, first, obtain clearance from your doctor and then download a PDF copy of the Permanent and Total Disability Discharge Application form.

2.2 Social Security Award Notice

You are eligible for this student loan forgiveness disability porgram if both of the following facts are true. Supplemental Security Income (SSI) or Social Security Disability Insurance is your primary source of income (SSDI). Second, the Social Security Administration must mention in your notice of award letter that your next scheduled disability review will occur five to seven years after your most recent SSA disability decision.

2.3 Veteran Disability Determination

If you are a veteran who has been unable to work due to a service-related illness, you could be eligible for a student loan discharge without the need to provide medical documentation. You may submit a letter from the Department of Veterans Affairs confirming your disability rating and asserting that you are unable to work due to your impairment. Talk to your loan servicer about how to verify your disability if you have private student loans. Many private student lenders have their own paperwork for verifying impairment.

3. How to qualify for student loan disability forgiveness?

Student loan debtors who have a serious, long-term mental or physical disability can be eligible for disability student loan forgiveness. A doctor, the VA, or the SSA can all give proof of disability.

Borrowers with disabilities who are unable to work due to a persistent physical or mental disability may be qualified to have their student loan debt canceled. Proof of disability from a doctor, the Department of Veterans Affairs, or the Social Security Administration is acceptable to the Department of Education. Some private lenders could depend on the same data.

3.1 Changes to the student loan discharge will result in a significant increase in forgiveness

Start by reviewing the qualifying requirements if you want to pursue student loan forgiveness disability possibilities. Once you’ve confirmed your eligibility, schedule your preliminary visits so you may receive the disability designation and have your debts forgiven.

With the new negotiated rulemaking process set to begin in October 2021, future student loan borrowers will most likely only need to obtain a disability designation from the V.A. or SSA that lasts at least 5 years in order to receive total student loan forgiveness disability for federal student loans tax-free.

This is a significant change. If you are a student loan borrower who is deeply in debt and feel you should be eligible for student loan forgiveness disability, you may need to contact an attorney who specializes in arguing for disability claims if you are having difficulty with the application process.

At the very least, you no longer need to pursue the procedure with the Department of Education in addition to the

  • V.A.
  • or SSA

Given the nature of the disability, it is understandable that many borrowers would struggle to submit yearly income verification for three years while also handling an additional bureaucratic application.

3.2 What If You Are Not Eligible for TPD Discharge?

If you are not eligible for a TPD discharge, you must continue to pay your student loans and maintain good standing with your lenders, even if this student loan forgiveness disability option is not available. There are, however, still choices for alleviation.

3.3 Request a Revaluation

Within 12 months of your first application denial, you may reapply for a TPD release. Follow the same steps as previously, but this time add any information concerning your handicap that you may have overlooked in your first application.

3.4 Request Income-Driven Repayment

student loan forgiveness disability

You can also apply for a income-based student loan repayment. This procedure computes a lower monthly payment for your student loans. Payments are based on how your income compares to poverty requirements and the size of your household. It is another great option for student loan forgiveness disability. 

3.5 Deferment or Forbearance Request

It is critical to create a repayment strategy for your student loans. Payment deferment or forbearance might be requested. Your debts will most likely continue to accrue interest. Borrowers can choose forbearance to make reduced payments or to stop payments for up to 12 months.

Payments can be deferred for up to three years. Those who are eligible for deferral have financial difficulties, high medical costs, military duty, or have returned to school.

3.6 File Bankruptcy

If everything else fails and you continue to have financial difficulties, you can file for bankruptcy.

To discharge your student debts through bankruptcy, you must demonstrate that you are unable to make payments while maintaining a reasonable level of living. While it is difficult to get student loans canceled in bankruptcy, your debt may be partially discharged or you may be granted a reduced student loan interest rate.

Read More at:

Student Loan Bankruptcy

3.7 Go for private student loan cancellation alternatives in the event of disability

In the area of private student debts, the route to student loan forgiveness disability is less straightforward. Everything is dependent on the bank, credit union, or online firm from which you borrowed.

To discover more about your lender’s policies, see your loan agreement or call them. Discover Sallie Mae student loans, and Wells Fargo, which are among the lenders who provide student loan forgiveness disability when the principal borrower suffers from a certain permanent handicap. Prepare to provide documentation of your disability to your lender.

If your lender isn’t as generous, inquire about its alternative sources of assistance.

For example, your disability may prevent you from generating a regular salary. In such cases, you might apply for an economic hardship forbearance or unemployment protection program through your lender (if it has one). 

A forbearance would only halt your payments temporarily, not cancel them, but it’s a start. However, keep in mind that interest will continue to collect on your loan balance while you are not repaying it.

In the following sections, we will mention what disabilities qualify for student loan forgiveness disability, how to apply, and more.

4. What disability qualifies for student loan forgiveness

Any persistent physical or mental handicap that stops you from working may be eligible for student loan forgiveness disability. Borrowers, for example, have gotten permanent and complete disability discharge (TPD) as a result of:

  • Fibromyalgia (chronic)
  • Cancer (stage IV)
  • Serious depression
  • Bipolar disorder

If you do not qualify for a TPD discharge, you still have alternatives for decreasing your student loan payments. You can contact your loan servicer to determine whether you are qualified for deferral or forbearance, as well as an income-driven payment plan.

You may be able to reduce your monthly payments by extending your loan term (though you will end up paying more in interest over the life of the loan).

Refinancing your student loans might also help you save money on payments. SoFi, for example, can refinance both government and private loans.

Because you’re using a new loan to pay off student loans, you can change the loan terms, such as securing a lower interest rate than your existing loan, shortening the loan term (all of which save interest throughout the life of the loan), or lengthening the loan term (which, can lower your monthly payments, but may also result in paying more over the life of the loan).

Keep in mind that refinancing federal loans will result in the loss of government perks and safeguards. This implies the borrower will be unable to take advantage of TPD, income-driven repayment, or other federal loan programs like deferral or forbearance. If you believe you may wish to apply for a student loan forgiveness disability or other federal loan programs in the future, refinancing your federal loans may not be the best option for you. However, if you have private debts, it may be worth investigating.

5. How to apply for student loan forgiveness due to disability?

student loan forgiveness disability

If you are presently receiving Social Security disability benefits, you do not need to apply for student loan forgiveness disability for your federal student loans. The United States Department of Education will conduct a quarterly data match with the Social Security Administration (SSA) and the Department of Veterans Affairs. The Department of Education will notify qualified borrowers of their eligibility for a discharge, and their loans will be forgiven.

Those who are not eligible for

  • Social Security
  • or veterans disability payments

due to technical grounds must nonetheless apply for a discharge. If your doctor certifies that you are

  • completely and permanently incapacitated
  • and that your disability has lasted consistently for five years
  • is projected to endure for five years
  • or might result in death

you can still qualify for a TPD release without receiving Social Security or V.A. disability student loan forgivenes benefits.

Submit an application together with any supporting proof of your total and permanent disability to apply for student loan forgiveness disability. If the Education Department contacts you directly based on information from the Social Security Administration or the United States Department of Veterans Affairs, you are not needed to produce supporting evidence demonstrating that you are completely and permanently incapacitated. 

5.1 How long Student loan payments will be on hold?

Federal student loan payments are currently suspended until August 31, 2022. However, once payments resume, you will not be required to pay federal student loans while your application for student loan forgiveness disability is being processed.

If you believe you may be eligible for student debt forgiveness, contact your servicer as soon as possible. If you have federal student loans, your servicer should postpone them automatically. This means you will not be required to pay anything while your application is being processed.

If you have expenses and your Social Security payments are being withheld, your benefits may be delayed briefly while your discharge application is being processed.

Some private student lenders may suspend your monthly payments while your application is being reviewed. It is crucial to note that interest on private student loans will continue to accrue. If your request for discharge is denied, you may be assessed interest.

If you do not qualify for a debt discharge due to a permanent and total disability, depending on the type of loan you have, you may be qualified for a student loan repayment plan.

Almost all federal student loan borrowers have the option of selecting an income-driven repayment plan. Even if the debtor does not have any income, an income-driven repayment plan will calculate monthly payments depending on their wages.

Talk to your servicer about other payment choices if you have private student loans and do not qualify for student loan forgiveness disability.

6. How long is an application under review for total disability student loan forgiveness?

When you apply for student loan forgiveness disability through TPD, you will be given all of the information you need to complete the application. Nelnet will then determine if your loans qualify for student loan forgiveness disability. Finally, they will tell your loan holders that loan payments will be halted for 120 days.

Disability petitions for student loan forgiveness are normally considered within 30 days. If you are accepted for discharge based on SSA paperwork or doctor certification, you will be subject to a three-year review period beginning on the day your discharge is finalized and approved. Your income and any changes in your status will be watched during the review period.

If you gain discharge permission based on a V.A. determination, you will not be required to participate in a three-year review.

6.1 Is there any disadvantage of a discharge?

You will have to go through some hoops in the future to acquire federal student loans, and if you apply for a new loan within three years of your discharge, you will have to begin payments on the dismissed debt.

Although all discharges are currently tax-free, your state may tax you on the amount of the discharged debts. For further information, contact your state tax agency.

You are no longer subject to a three-year monitoring period in which your income is checked as of March 2021 if you are willing to try student loan forgiveness disability programs. Previously, if you earned more than a particular amount of money in the three years following your discharge (excluding disability compensation), your duty to repay the debt might be revived. (The income limit was determined by your state’s poverty requirements for a household of two.) The post-discharge monitoring period waiver is planned to last until the conclusion of the COVID-19 emergency relief period on January 31, 2022. Veterans who are completely handicapped are exempt from the post-discharge monitoring period.

7. What are tax liabilities for student loan forgiveness disability?

If the amount of your loan discharge is $600 or more, the Department of Education will report this amount to the IRS as income, which may be taxed at both the federal and state levels. This is a key factor to consider when determining whether or not to apply for a TPD discharge.

 Because their condition prohibits them from working, some people discover that the discharge’s tax obligation is more than their capacity to meet without gainful employment. In such a circumstance, examining student loan repayment options, such as an income-driven payback plan, may be prudent. 

An income-driven repayment plan may have monthly installments as low as $0 for certain people! Furthermore, the borrower is eligible for student debt cancellation disability after 20 or 25 years of fulfilling these income-driven repayments. So, before you commit to a TPD debt discharge, research the tax implications and thoroughly examine all of your choices.

Do you owe taxes on the discharged amount if you are granted a TPD discharge of your student loans? The answer differs for federal and state tax reasons in North Carolina.

If you got your discharge on or after January 1, 2018, the discharged sum is not taxable under federal tax law. However, if you obtained your TPD release before that date, the discharge amount may be taxed.

7.1 Are Discharged loans taxable?

Unfortunately, regardless of when your debt was discharged, your discharge is still taxable income under state law. In other words, money omitted for federal tax purposes will be included in determining your taxable income under North Carolina laws.

The date the borrower obtains the discharge determines whether the student loan forgiveness disability is tax-free. If the V.A. authorized the discharge, it is based on the day the discharge was approved. The discharge is based on the end of the 3-year post-discharge monitoring period, whether caused by SSA paperwork or a doctor’s certification. 

For state income tax purposes, the amount of student loan debt canceled by a student loan forgiveness disability may still be considered income to the borrower. Regardless of whether your discharge is tax-free in the eyes of the federal government, consult the tax authorities about the state taxes on student loan forgiveness due to disability 2022 in your state to learn how it may affect your state income tax.

8. How long do you have to be disabled to be granted student loan forgiveness?

student loan forgiveness disability

The conditions for a federal TPD discharge are comparable to the regulations for Social Security Administration disability benefits, but they are substantially more difficult to meet. Acceptance of Social Security disability benefits does not ensure acceptance of a TPD release.

If you want to qualify for a TPD discharge in terms of student loan forgiveness disability program, you must be unable to perform any “substantial gainful activity” (work that requires significant physical and/or mental activities) due to a

  • mental or
  • “medically determinable” physical disability

that has lasted 60 months, can be expected to last 60 months, is expected to result in death, or is due to a 100% military-service-connected disability.

There are two distinctions between this definition of disability and the definition used by Social Security. First, Social Security stipulates that your inability to work last no more than one year, not five. Second, for service-connected disabilities, Social Security does not automatically grant disability.

Those who get a Social Security disability award with a five-to-seven-year review date, indicating that they are in the “Medical Improvement Not Expected” (MINE) category, should be immediately eligible for a federal debt discharge. Because Social Security has determined that these situations are unlikely to improve, they must satisfy the five-year threshold for TPD release.

9. Conclusion

Whether or not you believe you are eligible for student loan forgiveness disability, it is vital that you make your monthly payments on time every month. As a result, you would avoid affecting your credit score negatively. Remember that if you qualify for student loan forgiveness disability, you will get a refund of any payments made after the effective date of your disability decision. While you’re at it, keep a watch on your credit to ensure no further issues occur.