A Total and Permanent Disability Discharge (TPD) is a type of loan forgiveness created by the U.S. Department of Education for people who can’t repay their student loans due to disability. To qualify for a TPD discharge, you must meet the eligibility criteria outlined by the U.S. Department of Education. Total and permanent disability is defined as a medically determinable physical or mental impairment that prevents you from engaging in substantial gainful activity which…
– can be expected to result in death, or
– can be expected to last continuously for 60 months or longer, or
– has lasted continuously for 60 months or longer
Thousands of people in this country are drowning in student debt. If you became disabled after receiving federal student loans, a disability discharge might prevent you from having to pay back some or all of your principal. The primary requirement for a TPD discharge is that you are no longer physically or mentally able to earn a living. It is up to you to apply for the discharge and provide the required documentation to prove you have a qualifying disability.
Showing That You Qualify for a Disability Discharge
You must provide documentation of your disability from one of three sources:
- The U.S. Department of Veteran Affairs (VA)
- The Social Security Administration (SSA)
- A physician
Depending on the source you use, you must submit specific supporting documentation to prove your eligibility. For VA documentation, you must provide documentation from the VA that shows you received a VA disability determination, either due to a service-connected disability that is 100% disabling or because you are totally disabled based on an individual unemployability rating.
If you apply for Social Security Disability Insurance or Supplemental Security Income, you must provide a copy of your SSA notice of award or Benefits Planning Query. This document should show that your next scheduled disability review is in a minimum of five to seven years from the date of your latest determination.
Qualifying for a Disability Discharge with a Physician’s Certification
To qualify for a TPD discharge with a physician’s certification, a physician must certify that you are unable to engage in any type of substantial gainful activity due to your physical or mental impairment. This assessment is based on the definition of Temporary and Permanent Disability given above.
Specifically, substantial gainful activity refers to work performed for pay or profit and which involves significant physical and/or mental activities. Only a Doctor of Medicine (M.D.) or a doctor of osteopathy/osteopathic medicine (D.O.) who is licensed to practice medicine in the U.S. can certify your discharge.
A TPD discharge only applies to some types of federal student loans, including:
- William D. Ford Federal Direct Loan (Direct Loan)
- Federal Family Education Loan (FFEL)
- Federal Perkins Loan (Perkins Loan)
- TEACH Grant service obligations
How to Apply for a Disability Discharge
To apply for a TPD discharge, you must complete and submit the discharge application along with any required documentation to Nelnet, the TPD discharge servicer. You can obtain and download the forms online at the Disability Discharge website and print them. There is also a lot of information about the application process on the website. If you don’t have a printer, you can request the necessary forms from Nelnet by phone or email.
Once you inform Nelnet that you want to apply for a disability discharge, they will stop the payments on your federal student loans for 120 days. This gives you time to submit your application and any other required documentation for consideration. Once you submit your application, Nelnet will facilitate communication between all the parties involved including the U.S. Department of Education, TEACH Grant recipients, and you.
Applying Through a Representative
If you can’t manage the application process on your own, you can designate someone to apply on your behalf. Both you and your representative must complete an Applicant Representative Designation form and submit it to Nelnet even if they already have a power of attorney to represent you. The company won’t work with your designated representative until they receive the form.
What Happens After You Submit the Disability Discharge Application?
Once you submit your application and the required documentation, Nelnet will provide you with information about the rest of the process. You won’t make any payments on your loans during the review process. If your application is approved, the next step depends on the process you used.
VA Documentation – If Nelnet determines that you are totally and permanently disabled, Nelnet will notify you that your loans and/or TEACH Grant service obligation have been discharged. They will instruct your loan holders to return any payments they received on or after the effective date of the determination.
SSA Documentation or Physician’s Certification– If Nelnet determines you are totally and permanently disabled, they will notify you that your loans and/or TEACH Grant service obligation are discharged and instruct your loan holders to return any payments received after they received your SSA documentation or from the date that the physician certified your discharge application.
Nelnet will also notify you that you are subject to three years of post-discharge monitoring beginning on the date the discharge is approved. If you fail to meet certain requirements during the monitoring period, your obligation to repay and/or complete your TEACH Grant service obligation will be reinstated.
Your Obligation During the Three-Year Discharge Monitoring Period
During the post-discharge monitoring period, you must provide Nelnet with documentation of your annual earnings from employment. Nelnet will provide you with the form, along with the current poverty guideline amounts. Failing to submit it with the appropriate supporting documentation will result in your obligation being reinstated. If nothing changes during the three-year post-discharge monitoring period, you likely won’t be obligated to repay your loan or complete your TEACH Grant service. However, if any of the following changes occur at any time during the three-year period, your obligations will be reinstated.
- Your annual earnings from employment exceed your state’s poverty guideline for a family of two, no matter what size your family is.
- You receive a new federal student loan under the Direct Loan Program or TEACH Grant.
- A disbursement of a Direct Loan or TEACH Grant that was paid out prior to the approval of the disability discharge isn’t returned to the loan holder or to the U.S. Department of Education within 120 days of the disbursement date.
- You receive a notice from SSA stating that you are no longer disabled or that your next disability review is scheduled longer than five to seven years from your most recent determination.
Once the obligation to repay your loans or satisfy your TEACH Grant service is reinstated, everything returns to the same conditions that existed prior to receiving the disability discharge. That means that if your loan was in default, it will return to default status.
Student Loan Delinquency and Default
If you can’t make your student loan payments, ignoring them isn’t an option. Like any other type of loan, they must be repaid. Your loan becomes delinquent as soon as you miss the first payment, even if you start making regular payments again. It stays delinquent until you repay the past due amount or choose another option such as deferment, forbearance, or an income-driven repayment plan.
After 90 days, your student loan servicer reports your delinquency to the three national credit bureaus. This lowers your credit rating and affects your ability to purchase things you need. A poor credit rating makes it difficult to impossible to get credit cards, home or car loans, or other forms of credit. Lenders will view you as a high-risk borrower, which means you’ll pay higher interest rates than other people pay. Poor credit can even make it difficult to get a cell phone, rent an apartment, or obtain some types of insurance policies.
A student loan goes from a delinquent status into default at different points depending on the type of loan you have. Direct Loans and FFEL Loans are considered to be in default after you fail to make your scheduled payments for more than 270 days. If you have a Perkins Loan, you are in default as soon as you miss any payment by the due date.
One of the most severe consequences of a default is that the entire unpaid balance of the loan and any applicable interest become due immediately. You no longer have the option to obtain a deferment or forbearance or a repayment plan. Other potential consequences include:
- You lose eligibility for additional federal student aid
- Your tax refunds may be withheld and applied toward your loan balance
- Your loan holder will have your wages garnished
- You might be forbidden to sell assets like real estate
- Your loan holder might take you to court
- You might be responsible for court costs, attorneys’ fees, and other collection costs
- Your school might withhold your transcript until your loan debt is satisfied
Don’t wait until your loan goes into delinquency or default to consider your options. The consequences of not paying your loan can be even more devastating than your student loan debt. A disability discharge can eliminate all of your student debt if you qualify. If you don’t, there are other legal ways to get out of student loan debt. The longer you wait to find a solution, the fewer options you will have available to you.
If Nelnet Denies Your Request for a Disability Discharge
If Nelnet determines you don’t qualify for a disability discharge, they will notify you of the reason for the denial. You can still request a reevaluation of your application if you can provide new information that supports your eligibility. You have twelve months from the date of the denial to submit this documentation.
If you wait until after the 12 months following the denial to request a reevaluation, you must submit a new TPD discharge application along with the new information supporting your eligibility. If you applied for a discharge of a TEACH Grant service obligation, you are again responsible for meeting the terms of the obligation.
Paying Taxes on a Disability Discharge
A federal law related to taxability on TPD discharges determines whether you are responsible for paying the taxes on your discharged loan. If you received the disability discharge prior to January 1, 2018, the IRS might consider the loan amount as income. If it is, you must pay federal income tax on the discharged amount.
If you receive a TPD discharge during the period of January 1, 2018, through December 31, 2025, the discharged loan amount is not considered income. Keep in mind, the way you receive the discharge also affects the date it is considered to go into effect.
If you are a veteran who has a TPD verified by the VA, the discharge is considered effective on the date it was approved. If you showed proof of your TPD discharge with documentation from SSA or a physician’s certification, the discharge date for federal tax purposes is at the end of the post-charge monitoring period. Even if the discharged amount isn’t considered income for federal tax purposes, it might be taxed by the state. Check with your accountant or the state tax office before filing your state tax return.
What If I Want to Go Back to School?
You can take out more student loans or TEACH Grants after receiving a disability discharge, but with some conditions. You must provide your school with a letter from a physician saying you are able to engage in substantial gainful activity once again. You must also sign a statement acknowledging you can’t get a disability discharge on the new loans or TEACH Grant unless your condition substantially deteriorates in the future.
In addition, if you got a TPD discharge on SSA documentation or a physician’s certification and you are still within the three-year post-discharge period, you must resume repayment on the loans that were discharged and/or accept responsibility for fulfilling the terms of your TEACH Grant service obligation.
How Iron Fist Can Help with Student Loan Debt
Iron Fist Legal offers attorney-based services to help borrowers reduce or eliminate their student loan debt. We have extensive experience helping borrowers who are victims of fraudulent lenders. We guarantee we can help our clients reduce their principal balance by 30 to 70%. Sometimes, their debts are completely canceled.
Contact Iron Fist Legal if you are having problems meeting your student loan payments. Don’t wait until things get worse to take action.