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It’s something no one wants to think about, but accidents and illnesses are painfully common. The Social Security Administration (SSA) has reported that 25% of 20-year-olds will become disabled before reaching retirement age.
If you’re unable to work, you’ll have a hard time making ends meet, let alone paying off your student loans. However, there is some potential relief for borrowers with federal student loans through the Total and Permanent Disability (TPD) program.
Eligible borrowers can ask the government to cancel their delinquent student loans, thereby eliminating their obligation to repay debt.
What is an exit from total and permanent disability?
The federal PDT has been available to student loan borrowers since the Higher Education Act of 1965 was enacted.
Under this program, federal loan borrowers who meet the government’s definition of “total and permanent disability” can be paid 100% of their outstanding loan balance.
When you apply, you submit your application to Nelnet, the federal lending agency that manages the TPD program. If your application is approved, your monthly payments are suspended and you typically enter a three-year monitoring period. If you’re still disabled at the end of the three years – and you don’t expect to recover – and you haven’t received an income or a loan, the government will return your loan balance to you.
Who is eligible for the TPD discharge?
Unfortunately, many people do not realize that they are eligible for TPD and lose significant relief. According to the National Student Loan Defense Network, approximately 589,000 student loan borrowers have been identified by SSA as eligible for TPD. Over 60% of eligible borrowers did not apply for a TPD, usually because they did not know the program existed or did not understand the application process.
This is why it is so important to carefully consider the criteria of the program. To be eligible for TPD, you must meet the definition of Total and Permanent Disability Program. Under the Higher Education Act of 1965, this means that borrowers must be unable to work due to physical or mental disabilities that are expected to last 60 months or more.
Disability information is verified in different ways.
TPD Requirements for Veterans
If you are a veteran of the United States Armed Forces, you may qualify for the TPD by providing documents that show that the Department of Veterans Affairs (VA) issued you a determination of disability for any of the following reasons:
- You have a service-related disability that is 100% disabling
- You are totally disabled on the basis of a rate of incapacity for work.
To note: In August 2019, then-President Trump signed a presidential memorandum extending TPD to veterans. Under the new rules, veterans who have been determined by the VA to be 100% disabled or unfit for work due to a disability will automatically be eligible for a loan discharge through the TPD, unless ‘they do not withdraw.
TPD requirements for social security beneficiaries
The government uses the SSA system to find borrowers eligible for TPD. If the SSA decides that you are eligible, they will send you a notice of your program eligibility with next steps. However, you may miss the SSA under certain circumstances, or a mail error may prevent you from receiving the notice. If this happens, you can apply by completing a release request and submitting supporting documents.
If you are receiving Social Security Disability Insurance or Supplemental Security Income, you may be eligible for TPD by submitting a copy of your SSA Award Notice or Benefit Planning Application that indicates your next review date. ‘disability. To be eligible, your next disability review date must be at least five to seven years from the date of your late SSA disability determination.
TPD requirements for people diagnosed by a physician
If you do not qualify for TPD under the rules for veterans or Social Security recipients, you may be eligible if you are diagnosed by a qualified physician – a Doctor of Medicine (MD) or Doctor of Medicine (MD). osteopathy or osteopathic medicine (OD) licensed to practice in the United States.
To apply for a TPD, your doctor will need to complete part of your discharge request stating that you are unable to work due to a physical or mental impairment that will result in death, has lasted continuously for the past 60 months , or can be expected to last for the next 60 consecutive months.
Which student loans are eligible for TPD?
Borrowers with these types of federal student loans are eligible for TPD:
- Direct Subsidized
- Direct Unsubsidized
- Parent PLUS
- GRAD More
- Direct consolidation
- Federal subsidized stafford
- Federal unsubsidized stafford
- FFEL More
- FFEL Consolidation
- TEACH grant service obligations
If you have private student loans, you are not eligible for the federal TPD release program. However, some large private student loan lenders, including Discover, Laurel Road, and Sallie Mae, will forgive you for your remaining balance if you become permanently disabled. Contact your lender directly for their loan cancellation policies.
How to Apply for Student Loan Disability Release
To start the TPD application process, follow these steps:
- Visit DisabilityDischarge.com. DisabilityDischarge.com is the official website of the TPD program. On the site, you can find answers to common questions and launch the app.
- Contact NelNet. Contact Nelnet to inform them of your intention to apply for a TPD. Nelnet will temporarily suspend your payments for 120 days to give you time to gather the necessary information and submit your request. You can reach Nelnet by calling 888-303-7818 or by emailing [email protected]
- Collect documents. Along with your application, you will also need to submit supporting documents, such as a proof of disability from your doctor, your SSA disability determination, or VA discharge documents.
- Complete the request. You can start your application online. You will need to print it out to complete it, then you can mail, fax or email the application and supporting documents to the Ministry of Education:
US Department of Education
P.O. Box 87130
Lincoln, NE 68501-7130
Email: [email protected]
If approved, you will receive a notification and enter a three-year monitoring period. In any of the following circumstances, the government will reinstate your loans and you will have to pay off your debt:
- You have annual employment income that exceeds the poverty line for a family of two, even if your actual family size is larger
- You receive a new Federal Direct loan or TEACH grant
- You receive a notice from the SA that you are not permanently disabled or that your disability review will take place before the previously scheduled five to seven year review period
Problems to watch out for with PDT
If you are eligible for TPD, the program can offer you significant financial assistance. It will completely eliminate your debt and take that weight off your shoulders.
However, there are some things to keep in mind:
If your loans are canceled through TPD, your borrowing options in the future may be limited.
- At the end of the three-year monitoring period: If you recover and decide to return to school, you will need to submit a letter from a doctor stating that you are able to engage in gainful activity. You also need to sign a statement stating that your new loans cannot be canceled by TPD since your condition already existed, unless it worsens.
- Before the end of the three-year monitoring period: If you decide to return to school before the end of the three-year monitoring period, you must resume payments on previously canceled loans. If you had TEACH grants, you are again responsible for fulfilling your service obligation or repaying the grant in the form of a loan with interest.
The amount the government discharged through TPD was previously taxable as income for federal tax purposes. However, a new law has been implemented that said loans released through TPD on or after January 1, 2018 are not taxable as income for your federal income tax return. This rule is due to expire on December 31, 2025, so future participants in the TPD program may have to pay federal income taxes.
Depending on the state you live in, the amount discharged by TPD might be subject to state income tax; this is why some borrowers eligible for TPD are withdrawing from the program. If you’re worried about the impact canceling the loan would have on your tax bill, see a tax professional.
Other options for student loan borrowers
If you have federal student loans but don’t qualify for TPD release, there are ways to make your debt more manageable:
- Income Based Refund (IDR). If you apply for an IDR plan and are approved, the government will give you a new loan term of 20 or 25 years. Plus, your payouts will be recalculated based on your discretionary income, potentially giving you a much smaller payout.
- Tolerance or postponement. With a federal forbearance or deferral program, you can temporarily defer your student loan payments. Depending on your situation, you can suspend your payments for up to three years.
If you are ill or have been injured and cannot afford to repay your loan, contact your loan advisor immediately to discuss your options. There may be financial hardship assistance programs that you can use to reduce or suspend your payments while you recover.