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Last update: December 16, 2024
3 minutes read
Student Loan Discharge Due to Disability or Death
Facing student loan discharge due to disability or death? Learn the essential steps and impacts for families and borrowers.
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
Ever wondered what happens to student loans if something unexpected, like a disability or death, happens? We’re here to talk about it. Understanding student loan discharge due to disability or death can make a tough situation a bit less challenging for students and their families. We'll discuss the steps, eligibility, and available support, making the student loan journey less confusing for everyone.
Key takeaways
- The federal government offers options for student loan relief for borrowers who are undergoing permanent disability, known as TPD discharge
- The process for qualifying for discharge involves submitting all of the relevant documentation
- Unlike other types of debt, this forgiven debt is not taxed, although that exemption is set to expire in 2025
Understanding the total and permanent disability discharge
Total and Permanent Disability (TPD) discharge offers a crucial financial lifeline to borrowers suffering from disabilities that keep them from being able to work. This discharge applies to William D. Ford Federal Direct Loans, Federal Family Education Loans, Federal Perkins Loans, and Teacher Education Assistance for College and Higher Education Grant service obligations.
How to qualify for TPD discharge
Qualifying for a TPD discharge is possible in one of three ways: documentation from the U.S. Department of Veterans Affairs (VA), the Social Security Administration (SSA), or a certified medical professional.
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For each option, you need specific documents that show you can't do substantial work because of a physical or mental issue.
The impact of TPD discharge on taxes
The discharged loan amount isn’t considered income for federal tax purposes from January 1, 2018, to December 31, 2025, thanks to a change in tax law (though they may make it a permanent feature through a vote). However, it may be viewed as income for state tax purposes, which means borrowers are encouraged to consult with tax professionals.
Navigating the application process
Applying for a TPD discharge involves submitting the required documentation to Nelnet, the servicer for TPD discharges. Borrowers need to complete an application and attach the relevant documentation, but they can also nominate a representative to submit the application if they’re unable to do so themselves. The process includes a three-year monitoring period to ensure the borrower's condition hasn’t changed.
As of May 2023, about 492,000 people got help from this program. Below is a table which outlines the basic requirements of the discharge process.
Table 1: Overview of TPD Discharge Qualification and Process
Qualification Method | Required Documentation | Key Considerations |
|---|---|---|
U.S. Department of Veterans Affairs (VA) | Disability determination from the VA | Only applicable for military veterans who have experienced a service-related disability. |
Social Security Administration (SSA) | SSA notice of award or Benefits Planning Query | Eligibility based on SSDI or SSI benefits, with specific conditions for disability review scheduling. |
Certified Medical Professional | Certification of disability by an MD, DO, NP, PA, or certified psychologist | Must prove inability to engage in any substantial gainful activity due to a physical or mental impairment lasting or expected to last for at least 5 years. |
Table Notes: The discharged loan amount is not taxable federally between 2018 and 2025 but may be taxable at the state level. Borrowers are encouraged to consult with a tax professional for state tax implications.
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Frequently asked questions (FAQ)
You can qualify for TPD discharge if you are unable to perform work as a result of injury, disability, or, in the worst cases, death.
You will reach out to Nelnet, who services TPD discharge requests and submit the required documentation. This will either be documentation from Veteran Affairs, the Social Security Administration, or a certified medical professional.
Yes, if you are unable to manage the application process yourself, you can nominate a representative to handle it on your behalf. This could be a family member, legal guardian, or another trusted individual. You will need to provide proper authorization for them to act on your behalf.
Final thoughts
Understanding college finances is tough, but it's crucial for reaching your education and financial goals. With the right information, students and parents can make smart choices that affect their school and financial situation.
Remember, the road might seem intimidating, but you're not walking it alone. TuitionHero and our library of available resources are here to guide you every step of the way.
Source
Author
Brian Flaherty
Brian is a graduate of the University of Virginia where he earned a B.A. in Economics. After graduation, Brian spent four years working at a wealth management firm advising high-net-worth investors and institutions. During his time there, he passed the rigorous Series 65 exam and rose to a high-level strategy position.
Editor
Rachel Lauren
Rachel Lauren is the co-founder and COO of Debbie, a tech startup that offers an app to help people pay off their credit card debt for good through rewards and behavioral psychology. She was previously a venture capital investor at BDMI, as well as an equity research analyst at Credit Suisse.
At TuitionHero, we're not just passionate about our work - we take immense pride in it. Our dedicated team of writers diligently follows strict editorial standards, ensuring that every piece of content we publish is accurate, current, and highly valuable. We don't just strive for quality; we aim for excellence.
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