Living with a chronic illness or serious injury is hard enough without having to worry about making payments on your student loans. Luckily, the federal government provides the option of canceling a student loan borrower’s federal student loan debt if the borrower is too sick to work. If you become disabled due to illness or injury, you may be eligible for the Total and Permanent Disability (TPD) discharge of your federal student loan debt.
Written by Attorney Natalie Jean-Baptiste.
Updated November 4, 2020
Living with a chronic illness or serious injury is hard enough without having to worry about making payments on your student loans. Luckily, the federal government provides the option of canceling a student loan borrower’s federal student loan debt if the borrower is too sick to work. If you become disabled due to illness or injury, you may be eligible for the Total and Permanent Disability (TPD) discharge of your federal student loan debt. There are three ways to qualify for this discharge:
You are a disabled veteran who was discharged with a service-related disability.
You collect Social Security Disability (SSDI) and have a review period of five or more years.
Your doctor certifies that you cannot work.
A TPD discharge relieves you from having to repay a William D. Ford Federal Direct Loan (Direct Loan) Program loan, Federal Family Education Loan (FFEL) Program loan, and/or Federal Perkins Loan (Perkins Loan) Program loan or complete a Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation. This includes consolidation loans. If you have Parent PLUS loans, you may apply for a discharge based on your own disabilities, not those of your children. For a PLUS loan, the disability of only one of two obligated parent borrowers does not discharge the debt.
Total and Permanent Disability
If you have a total and permanent disability, this means that you are unable to engage in any “substantial gainful activity” due to a physical or mental impairment that can be expected to result in death; has lasted for a continuous period of at least 60 months; or can be expected to last for a continuous period of at least 60 months. Substantial gainful activity is a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both.
Applying Based on U.S. Department of Veterans Affairs Documentation
If you are a veteran who has been determined by the VA to be unemployable due to a service-connected disability, you may qualify for a discharge by providing documentation from the VA showing that you have received one of the following two types of VA disability determinations:
A determination that you have service-connected disability (or disabilities) that is 100% disabling, or
A determination that you are totally disabled based on individual unemployability rating.
Your disability must be service related in order to qualify for a V.A. disability discharge. Veterans qualify for a TPD 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.
Applying Based on Social Security Administration Documentation
If you collect Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), you may qualify for discharge by providing a copy of your notice of award from the Social Security Administration. Your next scheduled disability review must be within 5 to 7 years from the date of your most recent disability determination.
Applying Based on Physician Certification
If you are not a veteran and you don’t collect social security benefits, you need to have a doctor complete the application form explaining your condition and why you cannot be gainfully employed. You must submit the application with a physician’s certification within ninety days of the date of the certification. It is not enough for the doctor to list the diagnosis. They must also describe the reasons why the disability prevents you from working. The doctor is also required to rate certain daily activities which help determine if your loan should be discharged. The doctor must not use abbreviations or insurance codes when describing your condition.
The physician who certifies your TPD discharge application must be a doctor of medicine (M.D.) or doctor of osteopathy/osteopathic medicine (D.O.) who is licensed to practice in the United States.
You need to send your completed TPD application along with any supporting documentation to Nelnet, the TPD discharge loan servicer, at the following address:
U.S. Department of Education – TPD Servicing
P.O. Box 87130
Lincoln, NE 68501-7130
You can fax your application to (303) 696-5250
You can contact Nelnet by email at firstname.lastname@example.org
Your application will be reviewed within 30 days. You will not be required to make any payments while your application is being reviewed. But if your loans are in default, all wage garnishments and/or treasury offset payments will continue until your application is approved.
Designate Someone to Represent You
You may designate an individual or organization to represent you in matters related to your total and permanent disability discharge request. To designate a representative, you and your representative must complete an Applicant Representative Designation form. Nelnet must receive and process this form before working with your representative. You must submit this form even if your representative already has a power of attorney to act on your behalf in other matters.
TPD Discharge Denial
If your TPD discharge application is denied, you will receive a denial letter by mail explaining the reasons for the denial. Your loan holders will resume collection activity on your loans. You may ask Nelnet to reevaluate your discharge application if you provide new information that supports your eligibility within 12 months of the date that you are notified that your discharge application has been denied. If you don’t request a reevaluation within 12 months, you will have to submit a new application with new information about your disabling condition that was not provided with your prior application.
As of January 1, 2018, loan amounts discharged due to total and permanent disability are not considered taxable income by the IRS. Depending on which state you live in, you may, however, need to pay state income tax on the discharged amount. Consult with a tax professional to better understand your tax obligation.
If you are approved for a TPD discharge based on a physician certification or SSA documentation, there is a three-year monitoring period. During that time, your income will be reviewed.
You will receive a letter during the monitoring period requesting verification of income, if you have any. Acceptable documentation includes federal or state income tax return, earnings statement from the SSA, earnings statement from a state or local agency, or a pay stub. Your loan will be reinstated during the three-year monitoring period if your annual earnings are greater than 100% of the poverty guideline for a family of two (regardless of your actual family size). Only income earned from working counts. Disability or retirement pay won’t be considered. If you fail to respond, your loan will be reinstated.
Your loan will also be reinstated if you receive new federal student loans or you receive a notice from the SSA stating that you are no longer totally and permanently disabled, or that your disability review will no longer be the 5-year or 7-year review period indicated in your most recent SSA notice of award for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits.
If you’re a veteran whose TPD discharge application is approved based on documentation from the VA, you aren’t subject to a post-discharge three-year monitoring period.
Bar on New Student Loans
You may not get financial aid by taking out new federal student loans during the three-year monitoring period. The regulations only prohibit you from receiving new loans under the Perkins Loan, FFEL, or Direct Loan programs. This also includes TEACH Grants.
A key exception to the federal loan prohibition is that you are permitted to receive an FFEL or Direct Consolidation Loan during the three-year period as long as it does not include any loans that were discharged. Another exception is if you received a loan disbursement after the date the doctor signed the application, as long as the disbursement is returned within 120 days of the disbursement.
You can take out non-federal loans during the monitoring period and should be able to go to school without jeopardizing your discharge eligibility if you are able to attend without federal student loans.
Your discharged loans 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 earn more than 100% of the poverty guideline for a household of two.
If your loans are reinstated, you will be responsible for paying the loans under the terms of the promissory note or completing your TEACH Grant service obligation.
You won’t be eligible to receive a new federal student loan unless you get a certification from your doctor stating that you are able to engage in gainful activity and you sign a statement acknowledging that the new loan or TEACH Grant cannot be discharged in the future on the basis of illness or injury.
If your loans are reinstated, you can reapply for a TPD discharge. This time, be sure to submit your income verification when you receive the written requests during the monitoring period.