Under certain circumstances, you can cancel (discharge) your federal student loans. This article discusses how to discharge your student loans due to a total and permanent disability.
You can cancel your federal student loans if you're totally and permanently disabled and you meet certain eligibility requirements. In most cases, to qualify for cancellation, you can't 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.
To qualify for cancellation, you must demonstrate to the U.S. Department of Education (the Department) in one of the following ways that you’re totally and permanently disabled:
By providing a certification from your treating physician. Your doctor has to certify that you’re unable to engage in any substantial gainful activity because of a medically-determinable physical or mental problem that:
By showing you receive Social Security Disability (SSDI) or Supplemental Security Income (SSI). You can provide documentation of your Social Security Administration (SSA) notice of award for SSDI, SSI benefits, or a Benefits Planning Query (BPQY form 2459) that says your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination. (In some cases, the Department collects documentation automatically from the SSA about whether people get SSDI or SSI benefits. If you receive disability benefits and the SSA determined you are totally and permanently disabled, the Department might contact you and ask you to submit a student loan discharge application, but you won’t need to provide documentation of your SSA benefits to qualify.)
To get a student loan discharge in the past, disabled veterans generally had to send in documentation from the U.S. Department of Veterans Affairs (VA) showing a VA determination of a service-related disability that was 100% disabling or total disablement based on an individual unemployability rating.
On August 21, 2019, though, President Trump signed an executive order directing the U.S. Department of Education to forgive eligible disabled veterans’ debts automatically, unless they opt out.
If you notify the Department that you plan on applying for a disability discharge, the Department will tell your loan holders to suspend collection activity for up to 120 days. This means that you won’t have to make payments for up to 120 days, which gives you time to complete and submit the discharge application. After you submit your application, the Department will contact your loan holders and tell them to suspend collection activity on your loans for, again, a period of up to 120 days.
The suspensions don’t apply to wage garnishments or tax offsets, however. But if the Department approves your request for a discharge, the wage garnishments or tax offsets will be discontinued.
What happens after you receive a discharge generally depends on how you show that you’re totally and permanently disabled.
If the Department approves your request because you submitted (or it received) SSA documentation or a physician certification, you’ll be discharged from making further payments after the date the Department originally received the documentation used to approve your request. But you’ll be subject to a three-year post-discharge monitoring period starting on the date the discharge is approved. During this time, you’ll have to meet certain requirements, like your annual employment earnings can't exceed the Poverty Guideline amount for a family of two in your state, regardless of your actual family size. If you fail to meet the requirements, you’ll have to repay your discharged loans. (Learn more about the requirements you’ll have to meet during the three-year post-discharge monitoring period.)
If you receive a discharge because you're a totally and permanently disabled veteran, you’ll be discharged from making further payments beginning from the date of your disability.
You may apply directly to the Department through an online system run by Nelnet. You'll submit one application for all of your federal student loans. Go to https://www.disabilitydischarge.com to start the process.
Under the 2017 Republican tax reform law, if you receive a discharge of your federal student loans due to disability, the forgiven amount is excluded from your taxable income. Previously, the forgiven amount was taxable. The exclusion is applicable after December 31, 2017, but won't apply to discharges after December 31, 2025. (Learn more about How the Republican Tax Plan Affects Student Loan Borrowers.)
Some states, however, might consider forgiven student loan debt as taxable income, even if the federal government doesn't.