How to Qualify for Total and Permanent Disability Discharge

Did you know that as of April 2022, more than 400 thousand federal student loan borrowers have received $7.8 billion in forgiveness through Total and Permanent Disability (TPD) student loan discharge?

Thanks to a data match system implemented by the Biden administration, more borrowers with disabilities are discovering this fast and effective solution for wiping out their remaining loan balances.

If you’re a federal student loan borrower with a disability, TPD discharge could be your solution.

This quick and effective process wipes out your remaining loan balance and is tax-free at the federal level until 2026.

Ahead, we’ll cover TPD discharge essentials like eligibility, application, loan forgiveness, post-discharge monitoring, tax implications, additional resources, and answers to frequently asked questions.

Total and Permanent Disability discharge offers financial relief for borrowers with a permanent disability that prevents them from working. This program discharges outstanding student loan debt for eligible federal loans or TEACH Grant service obligations, covering physical, mental, or service-connected disabilities.

Eligible Disabilities

• Physical: Severe spinal cord injuries causing paralysis.

• Service-Connected: 100% disabling conditions due to military service, such as a lost limb in combat.

• Mental: Cognitive, emotional, behavioral conditions or mental impairments hindering consistent work, like severe bipolar disorder.

Related: What Disabilities Qualify for Student Loan Forgiveness?

Eligible Loan Programs

• Federal Family Education Loan (FFEL) Program: Includes Stafford and PLUS loans.

• William D. Ford Federal Direct Loan (Direct Loan) Program: Covers Direct Subsidized, Unsubsidized, PLUS, and Consolidation Loans.

• Federal Perkins Loans: For students with exceptional financial needs.

• TEACH Grant Service Obligations: Discharge of teaching commitments due to permanent disability.

TPD discharge can significantly reduce your financial burden, helping you focus on your well-being.

Successfully applying for a TPD discharge involves understanding the steps, submitting the required application, and providing supporting documentation. Familiarity with the process can boost your approval chances.

Required Supporting Documentation

1. SSA Notice of Award: Proof of Social Security Disability or Supplemental Security Income benefits due to your disability, with a scheduled disability review within five to seven years or more from the last determination. Request this at ssa.gov or call 1-800-772-1213.

2. VA Documentation: For veterans with service-connected disabilities, ensure a 100% disabling rating by the U.S. Department of Veterans Affairs

3. Physician’s Certification: If not receiving SSA or VA benefits, a U.S. licensed medical doctor or osteopathy must confirm your permanent disability prevents substantial gainful activity.

Submitting the Application

1. Online: Submit electronically at DisabilityDischarge.com for a streamlined experience and easier tracking.

2. By Mail: Send application and documentation to Nelnet, handling TPD discharge applications for the U.S. Department of Education:

U.S. Department of Education P.O. Box 87130 Lincoln, NE 68501-7130

Review and Response Timeline

The review and response timeframe typically spans from weeks to months, with most applicants hearing back within 60 to 120 days. As discharge process times may vary, remain patient, frequently check application status, and promptly address requests for further information.

Navigating loan discharge and forgiveness after obtaining a TPD discharge can be challenging.

After your application is approved, you’ll experience loan discharge, which removes your obligation to repay eligible loans. Review your loans to determine which ones qualify.

During the application process, contact your loan servicer to request a suspension or adjustment of payments while your TPD discharge application is being reviewed to avoid financial hardship.

As for your credit history and future borrowing, the TPD discharge is reported as “paid in full” or “discharged,” not negatively affecting your credit report. Monitor your credit score for neutral or positive changes after TPD discharge and adjust your financial planning accordingly.

Finally, if you’re hoping to get a refund, consult your loan servicer or loan holder to determine eligibility for refunds of payments made on loans after the TPD discharge effective date.

Your loan servicer calculates and issues the refund amount based on your payment history and the TPD discharge effective date. Maintain communication with your servicer to ensure you receive eligible refunds and resolve any issues.

Until July 1, 2023, borrowers approved for TPD discharge based on SSA documentation or a physician’s certification are subject to a 3-year post-discharge monitoring period to verify continued eligibility.

During the monitoring period, borrowers must inform their loan servicer of any changes in their annual earnings and employment status. They cannot engage in “substantial gainful activity,” meaning their annual earnings must not exceed the poverty guideline amount for a family of two in their state, regardless of actual family size. Borrowers must also share their scheduled disability reviews by the SSA with their loan servicer.

Reinstatement

Loans and obligations can be reinstated if borrowers fail to meet eligibility requirements. Loss of eligibility can occur if:

1. Annual earnings surpass the poverty guideline amount for a family of two in your state.

2. You obtain a new federal student loan or TEACH Grant and don’t return the funds within 120 days of disbursement.

3. You no longer have a disability, or your next scheduled disability review occurs sooner than 5 to 7 years from the last SSA disability determination.

Eliminating the monitoring period

Starting July 1, 2023, the Department of Education will remove the three-year post-discharge income monitoring period, streamlining the process and reducing the administrative burden on borrowers.

This change enables borrowers who receive TPD discharge to concentrate on their well-being and financial stability without concerns about ongoing income monitoring requirements.

The Education Department released these rules, which will take effect on July 1, 2023, as specified in the Higher Education Act.

Here’s a breakdown of federal and state tax implications and tips for managing potential tax liabilities.

Federal Tax Implications

The Tax Cuts and Jobs Act of 2017 made TPD discharge tax-free at the federal level for discharges issued between January 1, 2018, and December 31, 2025. Stay informed about potential changes after 2025. If you receive a Form 1099-C, keep it for your records, but don’t include it when filing your federal tax return.

State Tax Implications

State tax implications for TPD discharge vary by location. For example, California follows federal tax law, making TPD discharge tax-free at the state level, while other states might treat it as taxable income. To determine your state tax liability, research your state’s tax laws or consult a tax professional.

Managing Potential Tax Liabilities

Stay informed about changes in tax laws at both federal and state levels to make informed financial decisions and prepare for potential tax liabilities. A tax professional can provide tailored advice based on your specific financial situation and help you navigate tax laws related to TPD discharge.

Maintain thorough records of your TPD discharge and related documentation for easier tax filing and accurate reporting to tax authorities if required.