Disability and Death Discharges
|On-line Disability Discharge Application/Process|
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 result in death, last for a continuous period of not less than 60 months or can be expected to last for a continuous period of not less than 60 months (5 years).
FFEL, Direct and Perkins loans can be discharged for qualified borrowers. Parents with PLUS loans may apply for discharge based on their own disabilities, not those of their children. If two parents have a PLUS loan and only one becomes disabled, the other parent remains obligated to repay the loan.
There are three ways to meet the Department of Education disability discharge standard:
1. Veterans who have been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition qualify for this discharge without having to provide additional documentation from a doctor. Veterans that obtain a discharge in this way are eligible for a refund of any student loan payments received by the Department of Education after the effective date of the V.A. determination, or
2. If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within 5 to 7 years from the date of your most recent SSA disability determination, or
3. You can submit certification from a doctor that you are totally and permanently disabled. You must do this within 90 days of the date of the doctor’s signature on the form. Tell your doctor to be prepared to get follow-up letters and requests from the loan holder and Department of Education. The Department says that it is sending notices to borrowers to alert them if their doctors are not responding to requests for additional information. If you get this notice, you should contact your doctor as soon as possible.
ALERT: The Department announced in April 2016 a new process to identify and assist disabled borrowers who may qualify for a discharge. The Department started matching borrowers to the Social Security database and alerting those borrowers about the availability of the disability discharge. In April 2018, the Department announced a similar process to match data from Veterans Affairs with the Department’s records and then notify individual veterans about their eligibility for loan discharge.
You should let Nelnet, the Department of Education’s contractor, know that you want to apply. You can do this by phone or email. You can call seven days a week at 888-303-7818 (8 a.m. to 8 p.m. ET) or email at DisabilityInformation@Nelnet.net. You can also let Nelnet know you are applying by using the online disability discharge application. You can designate a representative to apply on your behalf. You must fill out the representation designation form available in English and Spanish on the Department’s disability discharge web site.
Once you let Nelnet know you are applying, they are supposed to do the following:
1. Provide you with information you need to apply for a discharge if you do not already have it.
2. Identify your federal student loans and/or TEACH Grant service obligation that may qualify for a discharge.
3. Contact your loan holders and instruct them to suspend collection activity on your loans for a period of up to 120 days. This means that during the 120 day period, you will not be required to make payments on your loans. This gives you time to complete the discharge application, but collection will start up again if you do not submit an application within the 120 day period. The Department says that the suspension of collection does not include administrative wage garnishment or Treasury offsets. The Department or guaranty agencies for FFEL loans may, however, stop or reduce offsets during this period.
How to Apply
You may start the application process on-line. The Department’s contractor Nelnet will then send you a partially completed form with your on-line responses filled in. You will need to complete this form and send by regular mail. You do not have to start on-line. You can also fill out the entire form on your own and send by regular mail. You must use the most recent form to apply. You only have to send one application to Nelnet even if you have a number of different loan holders. It is a good idea to send by certified mail and get a receipt. The applications should be mailed to U.S. Department of Education, P.O. Box 87130, Lincoln, NE 68501-7130.
What to Expect after Applying
Nelnet will review your application and will send approved applications to the Department of Education for final approval. If the Department approves the application, you will get a notice stating that your loan is discharged and notices about the three year monitoring period if applicable. You should also get a notice if the Department denies your application. You may appeal denials to federal court.
If you are approved, the discharge is effective as of the date the doctor signed the form or as of the date the Department received the SSA notice of award. Any payments received after the date the doctor signed the form or as of the date the Department of Education received the SSA notice of award must be returned.
After a final discharge, the Department will continue to evaluate you for three years and can reinstate the loan in certain circumstances. The three year period begins on the date the discharge was granted. Your loan will not be reinstated as long as you do not take out any new federal student loans or TEACH grants during the three years and as long as you do not have earnings from work that are more than 100% of the poverty level 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. You will also be reinstated if you applied using an SSA award notice and you receive a subsequent notice from SSA indicating that you are no longer disabled or that your disability review will no longer be the five to seven year period.
This reinstatement period does not apply to veterans applying through the separate veteran’s process.
The Department will monitor your earnings during this three year period by requiring you to submit documentation of employment earnings, usually on an annual basis. The Department only considers earnings from work, not from disability, retirement or other “non-work” pay.
The Department will send you a form to get information about your earnings (or lack of earnings) during the reinstatement period. If you have earned some income from employment, you will need to provide documentation to show that those earnings are below the allowable limit. The form includes a list of acceptable documentation.
If you do not have earnings from employment, you should only have to sign the “Post-Discharge Monitoring” form. By signing the form, you are certifying that you had no earned income from employment during the reinstatement period.
If you received a disbursement of a federal loan after the date the doctor signed the form or after the date you submitted the SSA award notice, 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.
ALERT: The amounts discharged due to disability may be taxable income, but there have been some changes in this area. Under a law recently passed by Congress, loans cancelled because of disability or death after December 31, 2017, will not be taxed. More information can be found in this blog post. For earlier discharges, the Department says: “If we approve your discharge because of VA documentation, we report the discharge of any loan debt totaling $600.00 or more to the Internal Revenue Service (IRS) for the year that the loan was discharged. If we approve your discharge because of SSA documentation or a physician’s certification, we report the discharge of any loan debt totaling $600.00 or more to the IRS for the year in which you completed the three-year monitoring period. If we report the discharge to the IRS, we will send you a 1099-C for the tax year that we sent it to the IRS. The amount of the discharged debt will be considered income for federal tax purposes and possibly for state tax purposes. You may want to consult with a tax professional to determine how this may affect your personal taxes.”
For example, you may be able to claim insolvency status using I.R.S. Form 982. (check the I.R.S. web site for most recent form). It is a good idea to consult a tax professional for more information.
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. A parent can also discharge a PLUS loan if the student for whom the parent received the loan dies.
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). In addition to the death discharge, the Higher Education Act specifically provides that student loan collection must end after death.
ALERT: A death discharge may have tax consequences that could impact the borrower’s estate or surviving parents with PLUS loans if their child dies. This is supposed to change. Under a law recently passed by Congress, loans cancelled because of disability or death after December 31, 2017, will not be taxed. It is a good idea to consult a tax professional for more information.