Student Loan Forgiveness for Disability: How to Discharge Debt
When you take out student loans, you trust that you’ll eventually make enough money to pay them back. But what if you’re struck by a sudden illness or are involved in an accident that leaves you unable to work? This is where student loan forgiveness for disability comes in.
You may already be aware that this form of relief is out there, but the good news is that it’s become more accessible than ever before, not to mention tax-free (for some, at least).
Here’s what you need to know about the student loan disability discharge:
- Federal student loan forgiveness for disability
- Private student loan forgiveness due to disability
- Applying for federal student loan forgiveness for disability
- Problems to watch out for with student loan forgiveness for disability
- Alternatives to student loan disability discharge
Federal student loan forgiveness for disability: requirements
If you’re a federal student loan borrower facing long-term disability and can’t work, you may be eligible for student loan forgiveness through Total and Permanent Disability discharge (TPD).
Nelnet assists the Department of Education with this program. To be eligible, you’ll first have to demonstrate that you are totally and permanently disabled. You can do that in one of the following ways:
What disabilities qualify for student loan forgiveness?
| 1. If you're a veteran | Submit documentation from the Department of Veterans Affairs (VA) showing that you are unemployable due to a service-connected disability. |
| 2. If you're receiving federal benefits | Submit a Social Security Administration (SSA) notice showing that you are receiving disability insurance or Supplemental Security Income and that your next scheduled disability review will be within five to seven years. |
| 3. If you're otherwise disabled | Submit certification from a physician proving that you are totally and permanently disabled, meaning that you suffer a physical or mental impairment that meets the following criteria:
|
Private student loan forgiveness due to disability
If you borrowed from a bank, credit union or another private lender, your access to loan forgiveness, even in cases of disability, is likely more limited. However, some lenders will forgive your remaining balance in the case of a disability or death.
If your lender offers this option, be prepared to provide documentation of your disability. Each lender will have a unique application process and qualifying criteria.
| Private student loan lenders that offer student loan disability discharge | Fine print |
|---|---|
| Ascent | ● Primary borrower only |
| Citizens Bank | ● Primary borrower only ● Parent loan borrowers' death or disability would transfer the balance to the family's estate |
| College Ave | ● Primary borrower only |
| Earnest | ● Primary borrower only |
| Laurel Road | ● Primary borrower only ● Lender may forgive some or all of the debt if the borrower's permanently disability affects their income ● Only for loans originated after the spring of 2015 |
| Sallie Mae | ● Primary borrower only |
| SoFi | ● Primary borrower only ● Disability: Federal loan-like verification standards ● Death: A certified copy of the borrower's death certificate could be required |
| SunTrust | ● Primary borrower only |
| Wells Fargo | ● Primary borrower only ● Parent loans are forgiven if the student beneficiary is dead or becomes disabled |
Applying for federal student loan forgiveness for disability
If you think you meet the requirements of TPD and want to apply for student loan forgiveness due to disability, contact Nelnet about your options. You can call them at 888-303-7818 or email them at [email protected]. You can also fill out an application or have someone complete it on your behalf.
(Note that the government is now providing Total and Permanent Disability discharge automatically for those who qualify based on Social Security data. See this government statement for the details.)
When applying for student loan disability discharge via TPD, you’ll be provided with the info you need to fill out the application. Nelnet will then check to see if your loans are eligible for forgiveness. Finally, they will contact your loan holders and notify them that loan payments should be suspended for 120 days.
At that point, you’ll be informed you can stop making payments and should fill out the application and submit it for processing. If you do not hand in your application within 120 days, your student loan payments will resume.
Once you’re finished with your application, you can send it along with any supporting materials to:
U.S. Department of Education
P.O. Box 87130
Lincoln, NE 68501-7130
Student loan forgiveness for disability applications are typically reviewed within 30 days. If you’re approved for discharge due to SSA documentation or certification from a doctor, you will be subject to a three-year review period that starts on the date that your discharge is finalized and approved. During the review period, your income and any changes in your status will be monitored.
If you receive approval for the discharge based on a VA determination, you won’t have to take part in a three-year review.
Problems to watch out for with student loan forgiveness for disability
Though student loan forgiveness disability discharge can be a lifesaver for those unable to work and make payments on their student loans, there are a couple of key factors to keep in mind:
Your discharge could be delayed or revoked
Like the borrower defense to repayment program, the federal government’s student loan disability charge initiative hasn’t operated without hiccups.
An NPR investigation published in December 2019 revealed that hundreds of thousands of borrowers (“more than enough to fill a city the size of Pittsburgh”) hadn’t yet received the disability discharge for which they were eligible. To be fair, included in that surprising number are borrowers who had yet to apply.
Here’s another catch: Once you’re approved for a student loan discharge via TPD — and even after you receive it — it could be voided if you fail to meet certain standards during your three-year monitoring period (if you have one).
Your loan balance could reset, for example, if you earn an income above the federal poverty guideline or don’t recertify your earnings annually with Nelnet. The same thing would occur if you return to school and borrow a new federal student loan.
In addition, borrowers who no longer have a permanent disability within the three-year window could lose their discharge.
If your disability discharge was previously revoked
Contact your federal loan servicer. It’s possible your discharge could be returned to you, especially if it was revoked because you failed to provide income documentation during the coronavirus pandemic. The education department announced on March 29, 2021, that no borrowers would have their loans reinstated because of this circumstance.
In the announcement, it was estimated that 41,000 disabled borrowers nationally would see their combined $1.3 billion student loan debt permanently discharged. And an additional 190,000 borrowers would not have to submit details of their earnings during the COVID-19 pandemic to maintain their discharge eligibility.
If you’re a new applicant to TPD (or your private lender’s program)
Ensure you follow its protocols to a T so that your application isn’t delayed, at least on your end.
Your discharge might be taxed
If you receive forgiveness between 2018 and 2025, you won’t have to fear a big federal tax bill, due to the Trump administration’s Tax Cuts And Jobs Act.
If your student loan disability discharge (and the accompanying Form 1099-C from the IRS) arrived in 2017 or earlier, you’ll still be on the hook for a potentially large tax bill.
One group, however, could be made exempt from this potential tax bill, as a result of the newest legislation. Borrowers who were approved for a TPD discharge in 2015, 2016 or 2017, but didn’t actually receive it until the end of their three-year monitoring period in 2018 or later (when the TCJA was applicable), could be free from Uncle Sam’s grasp.
If you’re unsure of your situation, confirm your discharge award date with Nelnet or consult a tax professional.
If you might qualify for a student loan forgiveness disability discharge down the road, consider that Congress will have to revisit the provision, as it’s set to expire in 2025.
Regardless of whether your discharge is tax-free in the eyes of the federal government, consult your state government’s tax authorities to learn about how it could affect your state income tax.
Student loan disability discharge and your credit report
If you receive a student loan forgiveness disability discharge, your credit report should state that you no longer owe the debt.
However, the Consumer Financial Protection Bureau has said that your credit report could keep your federal loans on the report during the three-year monitoring period (if you’re subject to one). On your report, you may see the notation “assigned to government” before the mention eventually falls off.
The simple act of the debt being forgiven could also change your credit score. After all, your credit mix and amounts owed — two of five credit scoring categories — will be affected by the discharge. Of course, you’d probably rather have your education debt forgiven if it only means a temporary and likely insignificant drop to your credit score.
Student loan disability discharge, plus alternatives
Dealing with federal and private student loans on top of a long-term disability can be a stressful situation, but there are some options to lessen the burden.
Student loan forgiveness for disability via TPD is a great solution, but before you apply, make sure you meet the requirements. If you don’t, consider other loan-management strategies to ease your repayment, including:
| Pros | Cons | |
|---|---|---|
| Deferment and forbearance | You can suspend your loan payments. | Interest will accrue on your balance (except for subsidized loans on deferment). |
| Income-driven repayment (for federal loans only) | It will cap your monthly payment at a percentage of your income. | It will also increase your interest costs. |
| Consolidation and refinancing | You can group your old loans into one new loan, and if you choose student loan refinancing, you may be able to lower your interest rate. | If you refinance federal loans (rather than consolidate them), you'll lose protections like access to income-driven repayment. |
Know that even if you don’t qualify for TPD student loan disability discharge or similar private lender support, you could still find student loan forgiveness programs that will slash or eliminate your debt balance.
And there are other ways of getting debt-free, even beyond forgiveness — check out our guide to student loan repayment for a look at some of your options.