Managing a serious disability is difficult, no matter what your life situation. Throwing in student loan debt on top of an unexpected medical condition can make things feel downright unmanageable.
Fortunately, some borrowers who are disabled may be able to discharge all of their federal student loans. If you have federal loans and are considered permanently and totally disabled, you may qualify.
What disabilities qualify for student loan disability forgiveness?
The U.S. Department of Education does not define specific disabilities that create eligibility for student loan forgiveness. Rather, they have created criteria based on the significance of the disability.
Permanent and total disability
To have your federal student loans discharged, you must show that you have a "total and permanent disability" — meaning that your disability will keep you from gainful employment for the rest of your life.
Depending on your particular situation, you can prove that level of disability through documentation from the U.S. Veterans Administration, the Social Security Administration, or your physician.
We'll talk more about the specifics below.
What loans can be forgiven for disability?
A permanent and total disability can be the basis for discharge of several different kinds of federal loans, including:
- William D. Ford Federal Direct Loan (Direct Loan) Program loans.
- Federal Family Education Loan (FFEL) Program loans.
- Federal Perkins Loans.
- The requirement to complete a TEACH Grant service obligation.
Are private loans eligible for forgiveness?
Unfortunately, most private lenders do not provide student loan forgiveness in the event of a disability.
However, if you have private student loans and have experienced a total and permanent disability, contact your lender to find out whether they provide options to assist disabled borrowers.
How to apply for federal loan discharge
Applying for a federal loan discharge on the basis of total and permanent disability can be done through an online application, but you'll need to obtain and attach the relevant supporting documentation as well.
Supporting documentation for discharge application
Here's what you need:
- If you receive Social Security Disability Insurance or Supplemental Security Income benefits as a result of your disability, you can submit your notice of award documentation from the U.S. Social Security Administration or the Benefits Planning Query that shows your next scheduled disability review will be five to seven years (or more) from your last disability determination.
- If you are a veteran and became disabled in the line of duty, you will need to submit documentation from the U.S. Department of Veterans Affairs showing that you are unemployable because of a service-related disability.
- You can also apply with a certification from your physician stating that you are unable to to engage in any substantial gainful activity because of a physical or mental impairment that can be expected to result in death, or has lasted for or can be expected to last for a continuous period of at least 60 months.
Monitoring period after discharge
If your application is approved and you're not a veteran, you'll go through a three-year post-discharge monitoring period, during which your student loans could be reinstated. The federal government will reinstate your loans if they find that you:
- Have received annual earnings that exceed the poverty guidelines for a family of two.
- Have gotten notice from the Social Security Administration that you are no longer disabled.
- Have taken out a new federal student loan through the Direct Loan or TEACH Grant programs.
- Have received a federal loan disbursement from a loan taken out before the discharge was approved and didn't return the loan disbursement.
- Failed to submit annual income information.
Do you have to pay taxes on forgiven loans?
As of right now, you do not have to pay taxes on loans discharged because of total and permanent disability as long as you received the discharge or were still in the three-year monitoring period after January 1, 2018.
Prior to the Tax Cuts and Jobs Act of 2017, disability discharges were considered income and were subject to income tax.
Fortunately, that changed with the 2017 law. But the new law isn't retroactive, and it's set to expire in 2025 unless Congress renews it.
A federal loan discharge may take one major hassle — student loans — off your plate while you're handling the difficulties of adjusting to life with a disability.
If you're not eligible for a discharge, consider refinancing your student loans to lower your monthly payments and save money over the life of the loan.