Disability and Death
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There is a discharge program for borrowers who become very seriously disabled after attending school. This total and permanent disability discharge is hard to get, but it is something that you should definitely consider if you have a very severe disability. Although this probably isn’t much consolation, your student loans will also be discharged if you die. Unfortunately for borrowers, private student loans do not have these protections. You can ask your private lender for relief, but these lenders are not required by law to help you.
Total and Permanent Disability
This discharge requires certification from a doctor that you are unable to work and earn money because of an illness or injury that is expected to continue indefinitely or result in death. This is a very restrictive standard and more than what most disabled individuals must prove to qualify for Social Security, Veterans or other government disability benefits.
FFEL, Direct and Perkins loans are eligible for this discharge. Parents with PLUS loans may apply for discharge based on their own disabilities, not those of their children. Consolidation loans may be canceled due to disability only if the borrower qualifies for a disability discharge for all of the loans that are included in the Consolidation Loan.
As of July 1, 2008, there are some new rules in the disability discharge program. The basic eligibility requirements are still the same, but there are a few important changes. The most important change is that doctors are no longer required to certify the date that your disability began. Instead, the doctor will only have to certify that you are totally and permanently disabled as of the date of application for discharge. The Department is working on a new application form that will no longer require doctors to provide disability onset dates. Until the new form is available, you should use the old form. You must submit this form to your loan holder within 90 days of the date the doctor signs the form. If you miss this deadline, you can still apply for a discharge, but you will have to ask your doctor to sign a new form.
The Department of Education announced that doctors no longer have to fill out section 3, line 2 and section 3, line 3b. This information is no longer relevant in evaluating disability discharge applications. The Department says that it will not reject applications received after July 1, 2008 if these lines are left blank. It’s also important to ask the doctor to provide as much information as possible about your disability. A lot of applications got lost in the process because doctors are unable to respond to repeated requests for more information. The more information you can submit at the outset about your disability, the better. Tell your doctor to be prepared to get follow-up letters and requests from the loan holder and Department of Education. In some cases, your doctor will be given a very short period of time, often only 3 days, to respond to these requests. (see sample).
You must send the application to the loan holder. It is a good idea to send by certified mail and get a receipt. The holder, such as a guaranty agency, will make a preliminary determination. If you make it through this preliminary round, the application will be sent to the Department of Education for further review. You should get a letter from your loan holder explaining this process. (see sample)
If the Department agrees with the preliminary decision, you will be placed in a three year conditional discharge period. The three year period begins on the date the doctor signed the completed application form. You will get a final discharge at the end of this period as long as you do not take out any new federal student loans during the three years and as long as you do not have earnings from work that are more than 100% of the poverty line for a family of two. This means that you are allowed to try to work, but if you earn more than this amount, the Department assumes you are not really permanently disabled. Even though you can work in this limited way after being placed in the conditional discharge period, you cannot be working at the time the doctor signs the form.
If you received a disbursement of a federal loan after the date the doctor signed the form, you can still qualify for the discharge as long as you return the funds to the loan holder within 120 days of the disbursement date.
The Department of Education says that the approval process can take up to a year. Although this is a long time, the good news is that collection efforts should stop once you submit a completed application until a decision is made. Interest should not accrue during this time.
A final discharge means that the loan is canceled and all payments, whether voluntary or involuntary, received after the doctor signed the form should be returned. You may appeal denials to federal court.
Disability Discharge Tips and FAQs
A: The Department will use the old rules in evaluating your discharge. Under the old rules, the doctor was required to certify the date that your disability began. You will not be eligible if you took out federal loans after this onset date. There is an important difference between a medical “condition” and a “disability.” If you had a condition at the time you took out the loan, you should still be able to qualify, assuming that the condition later deteriorated into a total and permanent disability and as long as you did not take out any new loans after this date.
Q: Is it possible to work and still be eligible for a disability discharge?
A: Even though the government may say otherwise, the answer should be yes. You are allowed to earn less than 100% of the poverty line for a family of two during the conditional period. This allows you to explore whether you can get back in the workforce. However, you will not be eligible if you were working at the time the doctor signs the application form. This is because the definition of disability is that the borrower cannot work and earn money because of an injury or illness that is expected to last indefinitely or result in death.
Q: Is evidence of a Social Security or Veterans Affairs disability decision sufficient to qualify for a student loan discharge?
A: No.
Q: Can I apply again if I was denied the first time?
Yes. This is more likely to be successful if there was a minor problem the first time around such as the doctor’s failure to fill in his license number. But you can also reapply if you have been able to gather stronger evidence of your disability.
Your government loans will not survive your death. This means that your estate will not have to pay back your student loans. Also, the death of both parents with a PLUS loan (assuming both took out the loan) is grounds for the “death discharge.” The death of only one of the two obligated parents does not cancel a PLUS loan.
Discharge because of the borrower’s death (or, in the case of PLUS Loans, the death of the student for whom the parent borrowed) is based on an original or certified copy of the death certificate submitted to the school (for a Federal Perkins Loan) or to the holder of the loan (for a FFEL or Direct Stafford Loan).
WARNING FOR PRIVATE LOAN BORROWERS: There is no administrative discharge for private student loans when the borrower dies. Private loan debts will be handled the same way as other debts. That means that they will be part of the borrower’s estate. This estate settlement process (also called probate) varies by state.
SLBA comments on proposed revisions to disability discharge application