Does being on disability get me out of paying student loans?

Question

I have severe back problems and was recently granted Social Security disability benefits. I heard that I could also get rid of my student loan debt. Is that true? I have both federal and private student loans.

Answer

While most federal student loans are eligible to be discharged on account of disability, your private loans might not.

How to Discharge Your Federal Student Loans Because of a Disability

Under specific circumstances, you can get a discharge of your federal student loans. A loan “discharge” is basically the same as loan forgiveness or loan cancellation; after your federal student loans are discharged, you’re no longer on the hook for paying them.

The federal student loan program offers a "total and permanent disability" (TPD) discharge for disabled people who meet specific qualifications. In most cases, to qualify for a discharge, you can't have had the injury or illness when 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 debt if you can show a substantial deterioration of your condition.

Documenting Your Disability

To qualify for a TPD discharge, you must demonstrate to the U.S. Department of Education in one of the following ways that you’re totally and permanently disabled.

By showing you receive Social Security Disability (SSDI) or Supplemental Security Income (SSI). If you’re getting Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can apply and provide documentation of your SSA notice of award for SSDI, SSI benefits, or a Benefits Planning Query (BPQY form 2459) stating that your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination.

If the Department of Education gets information from the Social Security Administration (SSA), which shows you’re receiving SSDI or SSI benefits and your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination, it might contact you and explain how you may apply for a TPD discharge. But you won’t have to submit supporting documentation.

By providing a certification from your treating physician. Your physician, a doctor of medicine (M.D.) or osteopathy (D.O.) that’s licensed in the U.S., must certify that you’re unable to engage in any substantial gainful activity because of a medically-determinable physical or mental problem that:

• can be expected to result in death
• has lasted for a continual amount of time that’s not less than 60 months, or
• can be expected to last for a continual amount of time that’s not less than 60 months.

Note that the fact that the Social Security Administration has already recognized that you're unable to work doesn't guarantee that the Department of Education will forgive your loan; the TPD discharge requirements can be harder to meet than Social Security's.

Loan forgiveness Is automatic for disabled veterans. On August 21, 2019, President Trump signed an executive order directing the U.S. Department of Education to forgive eligible disabled veterans’ debts automatically unless they opt out.

Eligible Loans

Federal Direct Loan Program, Perkins Loans, and the Federal Family Education Loan (FFEL) Program are eligible for a TPD discharge. Also, Teacher Education Assistance for College and Higher Education (TEACH) grants, which require you to complete a service obligation, can be discharged.

A Couple of Important Tax Issues to Note

The IRS generally treats the amount of a discharged loan as income to you, meaning you'll have to pay taxes on it unless you qualify for an exception or exclusion. But under the Tax Cuts and Jobs Act, if a student loan borrower becomes permanently disabled, the forgiven amount is excluded from taxable income for federal purposes. This exclusion is applicable after December 31, 2017, but will not apply to discharges after December 31, 2025, if Congress doesn’t renew it.

Some states might consider forgiven student loan debt as taxable income, even if the federal government doesn't.

Suspension of Collection Activities During the Application Process

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. So, 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, up to 120 days.

The suspensions don’t apply to wage garnishments or Treasury offsets, however. But if the Department approves your request for a discharge, the wage garnishments or tax offsets will be discontinued.

What Happens if Your Student Loan Discharge is Approved?

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.

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.

How to Apply for a Loan Discharge

You may apply directly to the Department through an online system. You'll submit one application for all of your federal student loans. Nelnet, a loan servicer, assists the U.S. Department of Education in administering the TPD discharge process.

Learn More

To find additional information about a TPD discharge, go to the U.S. Department of Education’s Federal Student Aid website or https://www.disabilitydischarge.com.

Discharging Private Student Loans

Private student loan lenders don't discharge loans very often. Though, sometimes, when a borrower becomes permanently disabled, the lender might agree to forgive the debt. To find out about cancellation options, contact your loan servicer to determine if the lender has a disability cancellation policy.