If you are permanently disabled, you may qualify to have your federal student loans discharged by the Department of Education. This only applies to federal student loans and is NOT a bankruptcy discharge.
To Qualify for a Federal Student Loan Discharge
To have your federal student loans discharge (wiped away) due to your inability to “engage in any substantial gainful employment” because of a physical or mental impairment, you will need to submit the following to the Department of Education for review:
- If you receive Social Security Disability Income or Social Security Income, you can submit your notice of award to the Department of Education that shows you are permanently disabled and your next review is not earlier than 5 years. If less than 5 years, you will not qualify for a disability discharge of your student loans.
- Your personal physician may complete a form certifying that you are totally and permanently disabled. However, your physician must state your specific disability, how long the disability is expected to last and that he/she believes you are unable to engage in gainful activity due to your disability.
- Veterans can get the documentation needed from the Veterans Affairs office stating you are not employable due to a service related injury.
The Discharge Process
- When you apply for the Total and Permanent Disability Discharge of your federal student loans through the Department of Education, the Department of Education will notify your student loan providers/lenders to cease all collection activity on your federal student loans until a determination has been made on your application.
- Typically, you will receive an answer from the Department of Education within 3-5 months.
- Depending on the Department of Education’s decision:
- If approved: the Department of Education will notify the lenders to discharge your federal student loans and return any money to you that you paid after your disability began.
- If denied: the Department of Education will send you a letter on why you were denied the discharge and instruct the lenders that they can begin collection activity on the loans against you.
NOTE: If your federal student loans are discharged, please know that any balance over $600 will be reported to the IRS as taxable income in the year they are discharged. Therefore, you need to consult with your tax advisor regarding your federal student loans being discharged.
If you are disabled but do not meet the criteria to apply for a Total or Permanent Disability Discharge, you might be able to consolidate your loans and enter in the William D. Ford Direct Loan program to receive relief. If you select and are able to qualify for an income based repayment (IBR) plan then your payments could be as low as $0.00 per month based upon your disability income. The benefit of this repayment option is that interest is not capitalized in your balance (meaning the monthly interest accrued that your monthly payment wasn’t able to pay would be wiped away instead of carried over into your loan balance) and at the end of your term (20-25 years), any remaining balance that you owe would be forgiven and you would NOT incur a tax consequences on the forgiven balance as you would if you had qualified for the Total and Permanent Disability Discharge as described above.
We have experienced attorneys providing financial solutions in Alabama, Mississippi and Tennessee. If you are in need of financial advice, contact your local Bond & Botes today for a free consultation.
Mary Pool is a shareholder of the Bond & Botes Law Offices in Montgomery and Opelika, Alabama. She holds a Bachelor of Science from Auburn University at Montgomery, and a Juris Doctorate from Faulkner University’s Jones School of Law. She has represented thousands of clients over her more than 11 years working in the bankruptcy field. Read her full bio here.