If you’ve recently suffered a total and permanent disability, you are likely completely overwhelmed. In addition to adjusting to the impairment, there can be an immense amount of paperwork and hurdles to claiming potential benefits.
One smaller but helpful potential benefit that most people miss is a total disability discharge of certain student loans. We’ll answer some common questions about the program and the process below.
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What Is TPD Discharge?
Total and Permanent Disability discharge is when your obligation to pay your Direct, Federal Family Education Loan (FFEL), and/or Perkins federal student loans is discharged due to your total and permanent disability. This also applies to TEACH Grant service obligations.
You may have heard of TPD discharge referred to as disability loan forgiveness. These are the same program.
You also may have heard the phrase Nelnet disability discharge. Nelnet is authorized by the Department of Education (DOE) to administer the TPD loan forgiveness program. For our purposes, Nelnet and the DOE are interchangeable.
How Do I Discharge My Student Loans Due to Disability?
The process varies based on a few things. You may or may not have to submit an application and you may or may not have to submit proof of your disability. It all depends how Nelnet, program administrator for the DOE, is notified of your potential eligibility for TPD forgiveness.
There are three ways that Nelnet and the DOE can be alerted to a candidate for TPD discharge.
Option #1 The VA Notifies Nelnet
The Department of Veterans Affairs (VA) may notify Nelnet of your service-connected disability and potential TPD status. When this happens, you will receive communication from the DOE that your loans are set to be automatically discharged. You do not need to apply or submit anything on your end.
Option #2 The SSA Notifies Nelnet
The Social Security Administration (SSA) may notify Nelnet that you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) and that your next disability review is within five to seven years from the date of your most recent disability determination by the SSA.
When this happens, the DOE will reach out to you with instructions on how to apply for a TPD discharge. While you will need to officially apply, you will not need to show proof of your total disability. If your review period is under five years, you’ll need to try to establish TPD status through option three.
Option #3 You Notify Nelnet
You can initiate the TPD discharge application yourself and submit supporting documentation of your qualifying disability from a licensed physician – either an M.D. or D.O. (doctor of osteopathy).
Who Is Eligible for TPD Discharge?
To be eligible for a TPD discharge, you must be deemed totally and permanently disabled.
Veterans are eligible for TPD discharge if they have suffered a service-connected disability that is “100 percent disabling” or if their individual unemployability rating is “totally disabled.” For non-service members, eligibility for SSDI or SSI means eligibility for a TPD discharge — so long as your next scheduled disability review is at least five years from your last disability determination by the SSA.
All other applicants may qualify if have an impairment that is:
- Expected to result in death
- Has lasted or is expected to last for at least 60 straight months
What Disabilities Qualify for Student Loan Forgiveness?
It’s not the type of disability, but the severity. Does your disability prevent you from earning a wage? Physician documentation under option #3 above should establish that you are disabled and cannot engage in “substantial gainful activity.” Substantial gainful activity is based on a dollar threshold: If you’re not blind and you earn more than about $1,300 a month, you’re probably engaging in substantial gainful activity.
Note: Your documentation should also attest that your disability has lasted or will last for at least five years or is likely to result in death.
Read More: Applying for Social Security Disability
Is There TPD Discharge Available for Private Student Loans?
Only if the private loan lender decides to offer such a program. In addition, even when this kind of program is offered and a discharge is approved, any cosigner on the loan may still be responsible for repayment. For example, Sallie Mae encourages permanently and totally disabled students to call 1-800-472-5543 to discuss waiving the current balance of their loans.
How Long Does a TPD Discharge Take?
The review process for your TPD discharge application typically takes less than a month. Once Nelnet is notified of your potential eligibility for a TPD loan forgiveness program through one of the three methods above, your affected loans will be suspended for up to 120 days. This gives you time to submit all required supporting documentation.
If your application is approved, loan holders will discharge your loans and loan payments made after your disability date will be returned.
Note: Wage garnishment for loans in default and other Treasury offsets may continue during this 120-day period.
If you are approved due to forwarded documentation from the Social Security Administration (Option #2), you will be subject to three years of post-discharge monitoring. This is done to ensure you continuously meet the requirements, including not exceeding a certain amount in annual employment earnings.
Does a TPD Discharge Create Taxable Income?
When you’re granted a TPD discharge of your student loans, do you then owe taxes on the discharged amount? The answer is different for federal and North Carolina state tax purposes.
If you received your discharge on January 1, 2018 or after, the discharged amount is not considered income under federal tax law. If you received your TPD discharge before that time, however, the discharge amount may be taxable.
Unfortunately, your discharge still counts as taxable income under state law, regardless of when your loan was discharged. In other words, income excluded for federal tax purposes will be added back in for purposes of calculating your taxable income under North Carolina rules.
How to Apply for Student Loan Forgiveness Due to Disability
To apply for a discharge, you must submit an application and provide supporting medical documentation. You can apply online or you can mail your completed application to:
U.S. Department of Education
P.O. Box 87130
Lincoln, NE 68501-7130
You may also fax your application and supporting documentation to the DOE at (303) 696-5250.
Claim everything you may be entitled to under the law. Don’t miss out on your student loan disability discharge.
What Happens if Your TPD Application Is Approved?
Nelnet will notify you and the holders of your loans and/or TEACH Grant service obligation of the approval. Nelnet will also instruct the loan holders to return any loan payments received on or after your disability date to the person who made the payments.
- If you applied via Option #1 above (VA notification), your “disability date” is the effective date of the VA’s determination that you have a service-connected disability that is 100% disabling or an unemployability rating.
- If you applied via Option #2 above (SSA documentation), your “disability date” is the date Nelnet received documentation of your SSA notice of SSDI or DSSI benefits.
- If you applied via Option #3 above (physician’s certification), your “disability date” is the date the physician signed your discharge application.
After receiving notice of the approval of your discharge request from Nelnet, the loan holders will transfer your loans and/or TEACH Grant service obligation to Nelnet for discharge.
What Happens if You Are Denied for TPD Loan Forgiveness?
Nelnet will notify you of the denial by mail and will also instruct your loan holders to resume collection activity on your loans.
Is There Partial TPD Student Loan Forgiveness for Those With Disabilities?
People with less than a 100% disability rating can discharge their student loan debt if a doctor certifies that their mental or physical impairment prevents them from engaging in substantial gainful employment.