Every student loan is really based on a wager: You agree to take on a loan in order to pay a large bill that you can’t afford, and in exchange you get the ability to pursue a career that will pay you enough to afford the loan payments. But what if that career doesn’t materialize? Or what if you’re partway into paying off your loan when your career is cut short-as might happen in the case of disability? Fortunately, with certain federal loans (and a very few private ones), there is relief.

What Is TPD Discharge?

A Total and Permanent Disability (TPD) discharge relieves you from having to repay a William D. Ford Federal Direct Loan (Direct Loan) Program loan, Federal Family Education Loan (FFEL) Program loan, and/or Federal Perkins Loan (Perkins Loan) Program loan or complete a TEACH Grant service obligation on the basis of your total and permanent disability. Before your federal student loans or TEACH Grant service obligation can be discharged, you must provide information to the Department to show that you are totally and permanently disabled. The Department will evaluate the information and determine if you qualify for a TPD discharge.

If you think you might qualify and want to apply for a TPD discharge, you must provide the information the Department needs to make a determination by completing a TPD discharge application and gathering supporting documentation that shows you are totally and permanently disabled. Depending on your situation, you will either attach the supporting documentation to your application or have your physician complete Section 4 of your application. Once everything is complete, you’ll mail the discharge application and, if required, the supporting documentation to us.

ELIGIBLE LOANS

Not all federal student loans are eligible for TPD discharge. You will only be considered for disability discharge if your loan is:

• A William D. Ford Federal Direct Loan Program loan (aka Direct loan)
• A Federal Family Education Loan Progam loan (aka FFEL loan)
• A Federal Perkins Loan Program loan (aka Perkins loan)
  or obligations incurred under the
• Teacher Education Assistance for College and Higher Education Grant Program (aka TEACH program)

If your federal loan does not fall into one of these categories, it will not be available for TPD discharge.

PROOF OF DISABILITY

There are three categories of proof demonstrating that you have a total and permanent disability qualifying you for TPD discharge:

• Veterans. If you are a military veteran with a service-related disability that makes it impossible for you to work, you may ask the U.S. Department of Veterans Affairs (VA) for documentation of your TPD.
• SSDI/SSI. If you are receiving SSDI (Social Security Disability Insurance) or SSI (Supplemental Security Income) benefits, you may submit your Notice of Award showing that your next scheduled disability review will be in five to seven years from your most recent Notice of Award.
• Certification by Physician. If you do not qualify for certification of your TPD status by the VA or SSA, then it is possible to have your status certified by a physician. In certifying your TPD status, your physician is saying that you have a medically determinable physical or mental impairment that makes it impossible for you to engage in substantial gainful activity. This impairment:
  • Can be expected to result in death
  • Has lasted for a continuous period of not less than 60 months

  OR

  • Can be expected to last for a continuous period of not less than 60 months

DATE OF DISABILITY

If the Department of Education approves your application, your loan will be discharged and you will not be required to make further payments (or further service under your TEACH obligation). Beyond this, any payments you have made on or after your date of disability will be returned to you.

For the purposes of this provision, the date of disability is:

• The effective date of the VA’s determination that you were permanently disabled
• The date the Department of Education received the SSA Notice of Award for your SSDI or SSI

OR

• The date your physician certified your permanent disability

MONITORING PERIOD

If your loan is discharged on the basis of VA documentation of your service-related permanent disability, then nothing further is required. Your loan will be discharged and no further payments will be required.

But if your loan is discharged on the basis of SSA documentation of SSDI/SSI benefits OR on the basis of a physician’s certification of your disability, then your approved discharge will be subject to a three-year period of monitoring.

During the three-year period of monitoring, your loan obligations (and/or TEACH service obligations) will be reinstated if:

• You have annual employment income that exceeds the federal poverty guideline for a family of two in your state (regardless of your actual family size)
• You receive a new Direct loan, Perkins loan, or TEACH grant
• You receive a new disbursement under the Direct loan, Perkins loan, or TEACH grant and you fail to return the full amount of that disbursement within 120 days;

OR

• You receive a notice from the SSA stating that you are no longer considered totally and permanently disabled OR that your disability review period is no longer five to seven years from your most recent Notice of Award.

  During this three-year monitoring period, you are also required to inform the Department of Education if:

• You receive annual employment income that exceeds the federal poverty guideline for a family of two in your state (regardless of your actual family size)
• There is a change in your address or telephone number
• You receive a request to provide the Department of Education with proof of your annual earned income

OR

• You receive a notice from the SSA stating that you are no longer considered totally and permanently disabled OR that your disability review period is no longer five to seven years from your most recent Notice of Award.

  Failure to abide by all of the requirements of the three-year monitoring period may result in the reinstatement of your loan (and/or service) obligations.

DENIAL OF APPLICATION

Once your application for TPD discharge is received, you will not be required to make loan payments until a decision on your application is rendered. If your application is denied, loan holders will be instructed to resume collection activity. The letter notifying you of the denial will instruct you on how you may go about applying for reconsideration of your application.

NEW LOANS AND TEACH GRANTS

The premise of disability discharge is that you are unable to work and, therefore, unable to pay off your loan. For this reason, if you are subject to a three-year monitoring period, it is not possible to apply for new Direct loans, Perkins loans, or TEACH grant during that period, unless:

• You present certification from a physician stating that you are able to engage in substantial gainful activity (which, of course, would also mean that you are capable of resuming payments on the discharged loan)

OR

• You sign a statement certifying that you will not in the future be eligible to discharge your obligations under a new loan or TEACH grant on the basis of a disability present at the time the new loan or grant, unless there is a serious deterioration in your condition rendering you once again totally and permanently disabled.

TAX OBLIGATIONS

If the amount of your loan discharge is $600 or more, then the Department of Education will report this amount as income to the IRS, and it may be taxable on the federal and/or state level. This is an important consideration when you are deciding whether or not to apply for a TPD discharge. Since their disability prevents them from working, some people find that the tax obligation incurred by the discharge is more than they can meet without gainful employment. In such a case, it may be wise to consider alternatives to loan discharge, such as an income-driven repayment plan. For some people, an income-driven repayment plan may have monthly payments as low as $0 per month! And what’s more, after 20 or 25 years of meeting these income-driven repayments, the loan is eligible for forgiveness. So, before you jump into a TPD loan discharge, look into the tax obligation this will incur, and carefully consider all of your options.

GETTING STARTED

Collecting the proper documentation, determining your tax obligation, and deciding between TPD discharge and other options, like an income-driven repayment plan, can all seem rather complicated. Fortunately, you don’t have to do it alone! We are here to help. Contact us to discuss your eligibility for TPD discharge and other options.