If you qualify to cancel a student loan, you may be able to completely wipe out your student loan debt, get reimbursed for previous payments, or eliminate future payments. There are several ways to cancel (discharge) student loans. This article discusses how to cancel student loans due to permanent disability or death.
To learn about other ways to discharge student loans, see Canceling Student Loans: School Closure, False Certification, Unpaid Refund and Canceling Student Loans: Teaching, Volunteer Work, and Public Service.
To learn about other options for dealing with student loans, see Student Loans: Cancellation, Deferment, and Forbearance.
Cancellation Due to Permanent Disability
You can cancel any federal student loan if you are unable to work because of an illness or injury that is expected to continue for five or more years or result in your death. In most cases, to qualify for this cancellation, you cannot have had the injury or illness at the time you signed up for the loan. If you did have the disability at the time you got the loan, you might be able to cancel your loans if you can show substantial deterioration of your condition.
How to Apply for Student Loan Cancellation Due to Disability
Effective July 1, 2013, the process for applying for a student loan disability discharge got easier.
Regardless of who your loan holder is, you apply directly to the Department of Education through an online system run by Nelnet. You submit one application for all of your federal loans. You can start the process here: www.disabilitydischarge.com.
Documenting Your Disability
To qualify, you will need to get a statement from your treating physician on the form provided by the online system. It's even easier if you receive Social Security Disability or SSI benefits and your award states that your next review is not for five or more years. In that situation, you can submit your social security award letter as proof of disability.
Suspension of Collection Activities
If you notify the Department that you intend to apply for a disability discharge, the Department must notify your loan holders to suspend collection activity for up to 120 days. Once you submit the application, collection activity must stop while the Department reviews your application. (The suspension does not apply to wage garnishments or tax offsets.)
What Happens if Your Student Loan Discharge is Approved?
If your documentation proves to the Department that you are permanently and totally disabled, you will be discharged from making further payments, beginning from the date your doctor certified your eligibility. During any of the next three years, if you earn over 100% of the poverty guideline for a family of two, or if you get certain educational grants or a new Direct or Perkins loan, your discharge will be revoked and your loan debt reinstated.
(You can find the poverty line numbers on the website of the U.S. Department of Health and Human Services at http://aspe.hhs.gov/poverty/poverty.shtml.)
Parents who took out PLUS loans together cannot both get disability cancellations unless both are disabled. If only one parent is disabled and both parents took out the loan, the nondisabled parent is still obligated to pay.
(To learn what a PLUS loan is, see Types of Federal Student Loans.)
Cancellation of Student Loan Due to Death
A student’s death wipes out any outstanding amount owed on student loans (including PLUS loans). If the loan has been consolidated with a spouse’s student loans, this discharge wipes out only the portion owed by the spouse who died. If both parents signed for a PLUS loan, the death of one does not wipe out the remaining debt.
This is a partial excerpt from Nolo's Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Margaret Reiter and Robin Leonard.