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Dear Liz: We have a family member who recently was approved by Social Security for a complete disability claim. This person will never work again but has an outstanding student loan. The lender has a formal mechanism to apply for loan forgiveness, but is refusing to accept medical documentation of the disability. What appeal process is there and how can we force them to act? Do we need to retain legal counsel and incur additional expense to enforce a legal process and achieve loan forgiveness? Answer: Federal student loans offer a “total and permanent disability discharge” that forgives outstanding education debt. You can find the rules and an application at DisabilityDischarge.com. The rules for private student loans, however, vary by lender. Four lenders — Sallie Mae, New York Higher Education Services Corp., Discover and Wells Fargo — offer a discharge for total and permanent disability that is similar to the federal one, said Mark Kantrowitz, publisher of the FinAid.org and FastWeb.com financial aid sites. The Sallie Mae discharge is also provided on loans made through lenders that market the Sallie Mae loans, such as Commerce Bank, Fifth Third Bank and Regions Bank, Kantrowitz said. Other lenders do not offer such a discharge, but all have a compassionate review process for their private student loans, he said. “Borrowers in a difficult financial situation, or their family or other representatives, should contact the lender that holds the loan directly,” Kantrowitz said. “The call center staff are not always familiar with the compassionate review process.” Lenders are generally more likely to cancel some or all of the debt, or at least reduce the interest rate, in a situation that permanently affects the borrower’s ability to repay, Kantrowitz said. They are less likely to make an adjustment when the loan was cosigned and the cosigner is capable of repaying the debt. “But it varies,” Kantrowitz said. “I’ve seen some cases in which the borrower was military and killed in action where the lender forgave the loans even though the cosigners were capable of repaying the debt. Another example involved a mother whose daughter dropped dead on an athletic field and the mother’s anguish was palpable in the letter to the lender.” Debt cancellation comes with another issue: taxes. Forgiven debt is typically treated as taxable income by the IRS. Your family member may be able to avoid the taxes if he or she is insolvent, but a tax professional should be consulted. Liz Weston is “The most-read personal finance columnist on the Internet” (Nielsen/NetRatings) and author of “The 10 Commandments of Money” and “Your Credit Score.”
Life is unpredictable. When you become disabled and can no longer pay your loans, there are still options to help you. Students with total and permanent disabilities are eligible to have their federal student loan debt erased. New regulations rolled out in September 2021 increased the number of borrowers eligible for student loan disability discharge. Some students may be automatically enrolled in the discharge process. However, others might have to apply for discharge. Here's what you need to know: What Is Student Loan Disability Discharge?Total and permanent disability discharge (TPD discharge) is a federal protection that forgives the student loans of individuals with permanent disabilities. It allows relief for individuals who may otherwise struggle to afford loan payments due to their disabilities. TPD discharge also removes TEACH Grant service obligations. New regulations from the Education Department increased the number of individuals who qualify. The application process uses certification from physicians, Veteran Affairs, and Social Security Administration documentation. So what disabilities qualify for student loan forgiveness? There is no set list of disabilities that determine eligibility for TPD discharge. Disabilities that qualify an individual for loan forgiveness are conditions that could potentially cause death or are expected to last for a continuous period of longer than 60 months. What Student Loans Qualify for TPD Discharge?Those living with a permanent disability are eligible for student loan forgiveness, including all federal student loans and grants. Eligible loans included:
Along with loan forgiveness, TPD discharge removes the service obligations associated with a TEACH Grant. How Can I Get TPD Discharge?An individual or their representative can apply for a TPD discharge. For some, the process is automated. Others may need to go through the application process and even reapply if denied. The Government Could Automatically Discharge Your LoansSome individuals may be automatically enrolled for TPD discharge. A federal process implemented in 2021 automatically enrolls some individuals using data from the U.S. Department of Veterans Affairs (VA) or the Social Security Administration (SSA). If you qualify for loan forgiveness based on information supplied by the VA or SSA, you will receive a letter informing you of your eligibility. You can decline any loan forgiveness but must do so by a certain deadline after receiving the letter. Otherwise, the federal government will automatically discharge your student loans. If you qualify for TPD discharge but do not receive a notice, you can apply for TPD discharge. You may have to submit other documents that prove your eligibility. Apply With Veterans Affairs DocumentationMany people join the military to take advantage of the many VA education benefits. This includes the GI Bill, which covers the cost of in-state tuition for up to 36 months. If you are a veteran applying for a TPD discharge, you must include documentation of your disability from the VA. This information will show that your disability is both complete and related to your military service or that your disability prevents you from meaningful employment. Apply With Social Security Administration DocumentationIndividuals qualify for a TPD discharge if they are already eligible for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). You can apply for SSA disability benefits online. Unless your disability is from amyotrophic lateral sclerosis, SSDI benefits do not begin until your sixth month of disability. It's important to apply as soon as possible after becoming disabled. You will need to submit a copy of your SSA award notice with your TPD application. The date of your initial SSA eligibility should be a minimum of five years before your next disability review. Apply With Documentation From Your DoctorYou can also qualify for TPD discharge using documentation supplied by your physician. The only physicians that can provide documentation of your disability are doctors of medicine (MDs) or doctors of osteopathic medicine (DOs). They must also be licensed to practice in the United States. Your physician needs to complete section four of the TPD application, the physician's certification, and include any supporting documentation of your disability. Do Private Student Loans Qualify for TPD Discharge?Taking out private student loans to pay for college comes with its own set of risks, including higher interest rates and a lack of federal protections and forgiveness programs. This means that private student loans are not eligible for TPD discharge with the government. Some larger private student loan companies will waive your remaining balance if you become permanently disabled. Unfortunately, in some cases, this means lenders will release the borrower but not the cosigner of these loans. However, private student loan borrowers with disabilities might see some relief. An amendment introduced in April 2021 could require private loan companies to discharge loans for the borrower and cosigner if they die or are permanently disabled. What if You Don't Qualify for TPD Discharge?If you do not qualify for a TPD discharge, you are still obligated to pay your student loans and remain in good standing with your lenders. However, there are still options for relief. Ask for a ReevaluationYou can reapply for a TPD discharge within 12 months of your original application denial. Follow the same process as before, but include information about your disability that you may have missed from your first application. Apply for Income-Driven RepaymentYou can also apply for an income-driven repayment plan. This process calculates a reduced monthly payment for your student loans. Payments depend on how your income compares to poverty guidelines and your family size. Request a Deferment or ForbearanceIt is important to make a plan to pay your student loans. You can request payment deferment or forbearance. In most cases, your loans will continue to accrue interest. Forbearance allows borrowers to either make smaller payments or pause payments for up to 12 months. Deferment pauses payments for up to three years. Those who qualify for deferment have economic hardships, expensive medical bills, military service, or have returned to school. File for BankruptcyIf all else fails and you still struggle with payments, you can file for bankruptcy. To discharge your student loans through bankruptcy, you must prove that you can't make payments while also maintaining a minimum standard of living. While it is difficult to get student loans dismissed through bankruptcy, your loan may be at least partially discharged or you could be awarded a lower interest rate. DISCLAIMER: The information provided on this website does not, and is not intended to, constitute professional financial advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers of this website should contact a professional advisor before making decisions about financial issues. Can private student loans be written off?Unfortunately, only federal student loans are eligible for student loan forgiveness programs — private student loans don't qualify. Tip: While private student loan forgiveness doesn't exist, there are other options that could help you more easily repay your private student loans.
How do I get out of private student loan default?One way to get out of default on a private student loan is to “rehabilitate” it by making good faith payments—if your lender offers this option. Most federal student loan payments are on hold, and interest is waived, through December 31, 2022, during the COVID-19 national emergency.
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Can private student loans be discharged due to disability
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