If you’re a totally and permanently disabled veteran, you can discharge your federal student loans, which means you don’t have to repay them. In April 2018, the government announced a plan to make it easier for eligible veterans to take advantage of this opportunity. Specifically, the U.S. Department of Education will use the National Student Loan Data System and U.S. Department of Veterans Affairs (VA) databases to identify disabled veterans who have federal student loans and invite them to apply for a student loan discharge.
Read on to learn more about how veterans with a service-related disability can qualify for a discharge of their federal student loans.
To qualify for a discharge, you must prove total and permanent disability in one of the following three ways:
(To learn more about how to document your disability, see Canceling Your Student Loans: Permanent Disability.)
A three-year “reinstatement period” (also called a “monitoring period”) will apply unless you prove your disability with VA documentation.
During the reinstatement period, you must submit annual income information to verify that your earnings fall below the poverty guideline amount for a family of two in your state. If you miss the deadline to file the income verification—or if any other reinstatement triggering event happens like you receive a new Direct loan, Perkins loan, or a TEACH grant, for example—your loans will be reinstated, and you’ll have to repay them. Over half of discharged loans get reinstated, mostly because borrowers fail to provide income verification.
So, if you’re a disabled veteran, it's best to have the VA certify your disability to avoid the reinstatement period and the associated annual reporting requirements. If your initial discharge application is unsuccessful, you may apply again with either a notice of award of SSDI or SSI or a doctor’s certification.
Nearly all federal student loans are eligible for a disability discharge. All FFEL loans, Perkins loans, and Direct loans (including consolidation loans and Parent PLUS loans) are eligible. However, Parent PLUS loans are only dischargeable for the disability of the parent, not the student. Also, if both parents sign for a Parent PLUS loan, the loan will qualify for disability discharge only if both parents are disabled.
The Department of Education contracts with a company called Nelnet to process disability discharge applications. As soon as you decide to apply for a disability discharge, you should notify Nelnet. You may do this in writing but written notice isn’t required.
Nelnet is also a student loan servicer. You might have a different servicer for your loans, which can be confusing to borrowers. All disability discharge applications must be sent to Nelnet—even if Nelnet isn’t the servicer for your loans.
The Department of Education’s website provides the following contact information for Nelnet:
Once you notify Nelnet that you want to apply for a discharge, it will provide you with information about the application process. (You can also learn more about application procedures on the “Application Process” page at the Department of Education’s website.) Nelnet will then impose a 120-day period during which you won’t have to make any payments on your federal student loans. It will also contact all of your loan holders and instruct them to cease any collection actions. (Though, if any of your loans are in default and payments are collected through a wage garnishment and/or Treasury Offset, the garnishment or offset will continue.)
The 120-day period is intended to provide enough time for you to complete and submit your application and for Nelnet to either approve or deny it. If your application hasn’t been approved by the end of this period, you must resume making payments.
In April 2018, the Department of Education and the VA began cooperating to identify veterans with federal student loans who might be eligible for a disability discharge. So, if you have a service-connected disability and federal student loans, don’t be surprised if you receive notification in the mail that you could be eligible. You’ll also receive an application along with the notice.
But you must protect yourself as well. Remember that Nelnet is the only company that can grant a disability discharge for your federal student loans. If the notice you get is not from either the Department of Education or Nelnet, it could be a scam. If you have any questions about whether a letter you receive about a potential disability discharge is legitimate, call your loan servicer or Nelnet, or consider talking to an attorney.