In the past, the student loan discharge process for disabled veterans generally involved filling out paperwork and submitting supporting documentation to the U.S. Department of Education. Veterans' advocates often claimed that this process was too onerous for many severely disabled former servicemembers.
To eliminate the burdensome application procedures, on August 21, 2019, former President Trump signed an executive order streamlining the process for getting a discharge. Now, totally and permanently disabled veterans can automatically get a discharge of their federal student loans—unless they opt out of the process.
Nearly all federal student loans—including all FFEL loans, Perkins loans, and Direct loans—are eligible for a total and permanent disability (TPD) discharge. A TPD discharge also relieves a borrower from having to complete a TEACH Grant service obligation.
Under a new process announced on August 21, 2019, the Department of Education will identify veterans who're eligible for a TPD discharge and give them 60 days to opt-out of the process. Those who don't decline will get a discharge of their federal student loans.
Before January 1, 2018, if a borrower received a disability discharge for a federal student loan, the forgiven amount was usually counted as taxable income under federal tax laws. Thanks to changes in the law, though, if you qualify for a disability discharge in the years 2018 to 2025, you won't have to pay federal income tax on the discharged amount. Some states, however, might consider forgiven student loan debt as taxable income—even if the federal government does not. So, depending on your state's laws, you might decide to turn down a discharge of your federal loans because of a potential tax liability. To get advice about whether you might have tax liability after getting a student loan discharge, talk to a tax lawyer or other tax professional.
You might also choose to pass on getting a discharge if you want to get student loans in the future because the process could be more difficult. If you have questions about how a discharge might affect your chances of receiving more student loans, check out the Federal Student Aid website. You might also consider talking to a debt settlement or consumer protection lawyer who has experience dealing with student loans.
If you're a veteran and you think you meet the eligibility requirements for a TPD discharge based on a disability determination from the VA, but didn't receive notice about a discharge, you can submit an application along with documentation from the VA showing that you have a service-connected disability (or disabilities) that is 100% disabling or that you're totally disabled based on an individual unemployability rating. The documentation you provide must include the effective date of the VA's determination.