Biden Administration To Cancel Student Loan Debt For Some Disabled Borrowers
Beginning in September, over 320,000 disabled borrowers identified through the Social Security Administration as being totally and permanently disabled will receive loan forgiveness without having to fill out an application. Credit: Oliver Contreras/Pool via TNS
Debt from college or university loans may be a thing of the past for some disabled students.
A $5.8 billion student loan forgiveness plan from the Biden administration will apply to borrowers who are totally and permanently disabled, meaning they cant work to support themselves due to a disability, according to an Aug. 19 Department of Education press release.
Beginning in September, over 320,000 disabled borrowers identified through the Social Security Administration as being totally and permanently disabled will receive loan forgiveness without having to fill out an application, according to the release.
Robert Humann, chief revenue officer at online lender marketplace Credible, said in an email the new announcement will simplify the process for those borrowers who are impacted.
While this type of loan forgiveness has been available in the past, it was not widely publicized and was riddled with paperwork, Humann said.
The department announced Aug. 26 it would also cancel federal student loans for former students of the ITT Technical Institute a now defunct for-profit college that defrauded its students.
More information about student loan forgiveness qualifications can be found here.
There’s No More Application For Most Disabled Borrowers
Previously, most borrowers with disabilities seeking student loan forgiveness also known as debt discharge were required to apply and provide documentation of their disability and their income.
Starting in September and continuing once a quarter, the Department of Education will cross-check its database with the Social Security Administration to identify borrowers who are totally and permanently disabled . It has already been performing this process with the Department of Veterans Affairs since 2019. Borrowers identified as TPD will automatically have their federal student debt forgiven. If that’s you, expect a letter from the Department of Education confirming your loan forgiveness sometime in the fall.
Debt forgiveness applies to the following types of loans: Federal Direct Loan Program loan, Federal Family Education Loan Program loan, and Federal Perkins Loan Program loan. It also relieves borrowers who are disabled from completing a TEACH Grant service obligation.
Borrowers who are not identified in the VA or SSA databases and are seeking student loan forgiveness still need to apply and provide a physician’s certification of disability.
Private Student Loans: Disability Discharge
Some private student loans provide a disability discharge that is similar to the TPD Discharge for federal student loans. These lenders include:
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Citizens Bank
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Sallie Mae Call 1-800-4-SALLIE
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SunTrust Education Loans 1-800-233-0557
- Other private student loan lenders
In addition, several state student loans provide a disability discharge, including state student loans from Georgia, Iowa, Kentucky and Texas.
Some of the lenders offering a disability discharge on private student loans provide a disability discharge on private student loans that is more generous than the disability discharge standard for federal loans. For example, some of the lenders will discharge private parent loans if the student becomes totally and permanently disabled, not just if the parent borrower becomes disabled.
Sallie Mae was the first lender to offer a disability discharge on private student loans, starting with the Smart Option student loan in 2009. Other lenders followed their lead within the next few years and started offering disability discharges on new private student loans.
The borrower may also consider refinancing their student loans to switch to a lender who offers disability discharge, or at least a lower interest rate.
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My Student Loans Were Forgiven For My Disability But It’s Not All It’s Cracked Up To Be
My family doesnât yell. Sometimes we argue, and we are good at sarcasm, but fights hardly ever get loud. When I got the option to have my student loans discharged for disability, I remember all of the yelling as my family and I fought over whether I should accept. Total and permanent student loan discharge sounds great, right? Well, itâs not that easy.
Student loans and their subsequent interest make financial independence a near Herculean task for millennials to achieve. But Iâm not sure even Hercules could help a disabled person achieve financial independence.
While student debt is a problem across the board, for those living with a disability â like me, living with cerebral palsy â there are additional roadblocks. These can be of everything from finding a job to pay off the loans, to navigating the programs that are meant to help you but can actually make things worse, to just dealing with the stigma and emotions that come with taking advantage of the resources available to you. When I learned about loan discharge during graduate school around 2014, I had over $25,000 in public student loans. It seemed like an amazing opportunity when I got my Total and Permanent Disability Discharge qualification to discharge all of them. On paper, a program promising to erase thousands of dollars of debt looks great. But nothing comes for free â even student loan discharge.
Three years in poverty is a long time.
makes me feel like kind of a failure sometimes.
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> > Click HERE to View the TPD Discharge Program Frequently Asked Questions < <
According to Trumps executive order, only half or 25,000 of the approximately 50,000 totally and permanently disabled veterans who currently qualify for the discharge of their Federal student loan debt have received the benefits provided to them by the Higher Education Act of 1965, as amended.
But why did only 50% of eligible disabled veterans apply for VA student loan forgiveness?
Well, to be frank, the old process was confusing and frustrating, and prevented many disabled veterans from receiving the student loan debt relief for which they were entitled to by law.
The good news is that the new and improved disabled veteran student loan forgiveness program is super easy, intuitive to submit and get approved, and eligible disabled veterans can even apply online at the link below:
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Disabled Veteran Student Loan Forgiveness: Top 3 Reasons Why Veterans Should Apply
The new Disabled Veteran Student Loan Forgiveness Program discharges the Federal Student Loan Debt of veterans who are Totally and Permanently Disabled with a 100% P& T VA RatingOR have a 100 percent Total Disability Individual Unemployability status.
Its officially called the Total and Permanent Disability discharge program, and has been a huge success to date.
And guess what else veterans?
A little known fact is that if youre a veteran with a 100 percent scheduler VA disability rating , youre also eligible for Disabled Veteran Student Loan Forgiveness!
Sidelined By Disability And Saddled With Student Loans
Within months of receiving his diploma from Vanguard University near Los Angeles in May 2012, Edgar Zakata started having multiple seizures. He had suffered from epilepsy for most of his life, but medication had always kept the convulsions at bay. Not anymore.
Before he could put his psychology degree to use, Zakata began experiencing up to seven seizures a day. There were visits to the emergency room. There were CAT scans and cocktails of medications to get his condition under control. Nothing worked.
A series of tests suggested it was likely that nothing could be done to prevent the seizures from disrupting his life. He wouldnt be able to hold down a steady job. And with no source of income, there was no way he could repay the $33,000 he owed in federal and private student loans.
Zakatas prospects were bad enough for the Department of Education to discharge the $25,000 he owed the government, but not for Sallie Mae to grant a similar disability waiver for the $8,000 it was due.
Instead, the private lender demanded more medical records, more doctors letters, more proof. Two years later, the battle is emblematic of the disparities between federal and private student debt collection.
Whereas the federal government has rules for income-based repayment, forbearance and waivers for severe disability, there are no industry-wide equivalents governing private lenders. Instead, each bank or financial firm decides whether to institute those policies, and not all do.
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How To Apply For A Federal Student Loan Disability Discharge
To apply for a total and permanent disability discharge, complete the TPD Discharge Application and submit it with any supporting documentation.
The TPD Discharge Application is available in PDF format or through an interactive online tool on the DisabilityDischarge.com web site. The online tool will prefill parts of the application form. Do not use a TPD Discharge Application available from other web sites, as they may not be current.
You can also contact Nelnet, the servicer who processes TPD Discharge applications on behalf of the federal government, to ask for an application to be mailed to you. You can contact Nelnet by calling 1-888-303-7818, sending a fax to 1-303-696-5250 or sending email to .
If you tell Nelnet that you will be submitting a TPD Discharge application, they will place your federal loans in forbearance for 120 days to give you time to complete the application form. After they receive the TPD Discharge application, your federal loans will remain in forbearance while the application is reviewed.
Borrowers can also choose a representative to apply on their behalf. Unfortunately, the borrower will have to complete an Applicant Representative Designation form, even if the borrowers representative already has a power of attorney for the disabled borrower. Yes, you have to complete a form to let someone else complete forms on your behalf.
Does Tpd Discharge Affect Taxes
Thanks to the new tax code that went into effect early this year, the disability discharge of federal student loans is now tax-exempt. Previously, this discharge had to be reported as taxable income and could mean a pretty hefty tax bill when the time came. However, take note this only applies to discharges during 2018 through 2025.
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Disability Discharge Tips And Faqs
Q: Is it possible to work and still be eligible for a disability discharge?A:Even though the government may say otherwise, the answer should be yes. You are allowed to earn less than 100% of the poverty line for a family of two during the three year watch period after a final discharge is granted. This allows you to explore whether you can get back in the workforce.
Q. Can I qualify if I have a disability that prevents me from working in the occupation for which I was trained?A: Not if you are able to work in a different occupation. To be eligible, your disability must make you unable to engage in any type of substantial gainful activity.
Q: Is evidence of a Social Security or Veterans Affairs disability decision sufficient to qualify for a student loan discharge?A: For V.A., yes, if you have been determined to be unemployable due to a service-connected condition. For Social Security, in some cases, yes as of July 1, 2013. If you are receiving Social Security Disability Insurance or Supplemental Security Income benefits, you can submit a Social Security Administration notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within 5 to 7 years from the date of your most recent SSA disability determination as a way of proving eligibility for a disability discharge. You may do this instead of submitting a certification from your doctor.
Q: Can I apply again if I was denied the first time?
1. Pay stubs showing year-to-date income,
Need For Regulatory Action
The HEA provides that veterans who are totally and permanently disabled are eligible to have their Federal student loans discharged. Prior to the IFR, once determined by the Secretary of Veterans Affairs to be totally and permanently disabled due to a service-connected condition, the veteran was required to obtain documentation of that status from VA and provide it to the Secretary of Education, along with an application for total and permanent disability discharge, in order to receive the discharge of their student loans. Similarly, borrowers who are identified as eligible for a TPD discharge through the data match with SSA had to submit an application to the Department in order to receive the discharge.
The amendments in the IFR and these final regulations provide a quicker, more efficient process and will likely result in many more qualified veterans and individuals SSA determined to have a qualifying disability status receiving the discharge for which they are eligible.
Nevertheless, this final rule removes barriers and allows many more qualified veterans and other borrowers to receive the TPD discharge to which they are entitled.
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What Disabilities Qualify For Student Loan Forgiveness
Its not the type of disability, but the severity. Does your disability prevent you from earning a wage? Physician documentation under option three above should establish that you are disabled and cannot engage in substantial gainful activity. Substantial gainful activity is based on a dollar threshold: If youre not blind and you earn more than about $1,300 a month, youre probably engaging in substantial gainful activity.
Will Student Loans Be Forgiven In 2021
The federal government has not yet passed a law allowing student loans to be forgiven in 2021. In fact, President Joe Biden’s new budget proposal does not mention forgiving student debt. Still, Biden has discussed forgiving either $10 thousand or $50 thousand in federal student loan debt. But so far, that’s just talk.
What isn’t talk is this:
President Biden signed the American Rescue Plan Act. The Act includes a provision that makes any student debt forgiveness tax-free from December 2020 through December 31, 2025.
Click here to learn Will Biden Extend Student Loan Forbearance?
Can a defaulted student loan be forgiven? Student loans in default are eligible for loan forgiveness if you are totally and permanently disabled, your school closed, or your school made fraudulent misrepresentations. However, defaulted student loans are not eligible for the Public Service Loan Forgiveness Program or income-based student loan forgiveness.
Can student loans be forgiven after 10 years? A federal student loan can be forgiven after 10 years under the Public Service Loan Forgiveness Program. To qualify, public service workers will need to make 120 monthly payments under an IDR Plan for loans made under the Direct Loan Program.
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Federal Student Loan Forgiveness For Disability: Requirements
If youre a federal student loan borrower facing long-term disability and cant work, you may be eligible for student loan forgiveness through Total and Permanent Disability discharge .
Nelnet assists the Department of Education with this program. To be eligible, youll first have to demonstrate that you are totally and permanently disabled. You can do that in one of the following ways:
| What disabilities qualify for student loan forgiveness? | |
|---|---|
| 1. If youre a veteran | Submit documentation from the Department of Veterans Affairs showing that you are unemployable due to a service-connected disability. |
| 2. If youre receiving federal benefits | Submit a Social Security Administration notice showing that you are receiving disability insurance or Supplemental Security Income and that your next scheduled disability review will be within five to seven years. |
| 3. If youre otherwise disabled | Submit certification from a physician proving that you are totally and permanently disabled, meaning that you suffer a physical or mental impairment that meets the following criteria:
|
Would Student Loan Forgiveness Include Private Student Loans
Private student loans likely won’t be included in any student loan forgiveness passed by the Biden Administration. The loan forgiveness being discussed by Biden and members of Congress applies only to federal student loans. These loans include:
- Direct Subsidized Loans
The PSLF Program considers you to be a full-time employee if:
- you meet your employer’s definition of “full-time” OR
- you work at least 30 hours per week, whichever is greater.
But what if you work part-time for two qualifying employers?
In that case, part-time employees can still meet the full-time eligibility requirements by working a combined 30 hours per week on average.
How to certify employment
Until recently, borrowers could submit a PSLF Employment Certification Form to certify they work for a qualifying employer. As part of a policy change, the certification form has now been merged into the Public Service Loan Forgiveness & Temporary Expanded PSLF Certification & Application.
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Your Discharge Might Be Taxed
If you receive forgiveness between 2018 and 2025, you wont have to fear a big federal tax bill, due to the Trump administrations Tax Cuts And Jobs Act.
If your student loan disability discharge arrived in 2017 or earlier, youll still be on the hook for a potentially large tax bill.
One group, however, could be made exempt from this potential tax bill, as a result of the newest legislation. Borrowers who were approved for a TPD discharge in 2015, 2016 or 2017, but didnt actually receive it until the end of their three-year monitoring period in 2018 or later , could be free from Uncle Sams grasp.
If youre unsure of your situation, confirm your discharge award date with Nelnet or consult a tax professional.
If you might qualify for a student loan forgiveness disability discharge down the road, consider that Congress will have to revisit the provision, as its set to expire in 2025.
Regardless of whether your discharge is tax-free in the eyes of the federal government, consult your state governments tax authorities to learn about how it could affect your state income tax.
