Federal Student Loan Discharge
The Total Permanent Discharge (TPD) process, which dates back to July of 2013, relieves student loan borrowers who are totally and permanently disabled according to federal program requirements of having to repay federal student loans or complete their grant service obligations. From fiscal years 2014 through 2018, more than 715,000 borrowers had $17.7 billion in loan principal and $1.8 billion in interest discharged through the program.
You can qualify for a Federal Student Loan Discharge if you are 100% or 100% TDIU VA (P&T Status not required), on SSDI (Social Security Disability) or SSI (Supplemental Security Income), or with a letter of unemployability from your doctor. So, you could be 0% or 50% or a non-Veteran and still qualify for Federal Student Loan Discharge.
Also included are Direct PLUS Loan's, referred to as Parent PLUS Loans when borrowed by parents. You cannot do a CHILD'S loan discharge for Graduate Plus loans based on being a totally disabled parent.
Before you apply or accept a student loan discharge, it is recommended all schooling is completed.
You can get another Federal Student Loan after a loan is discharged under certain circumstances.
NOTE: Some PRIVATE student loans may have language in the contract allowing for loan discharge when a signer is considered totally disabled. Read the contract or contact your loan provider.
NOTE: It does not matter if you get the student loan before or after you reach 100%, IU or start receiving SSDI.
VA: Veterans qualify if they have received a VA rating decision awarding either a service-connected disability or disabilities that are 100% disabling or who are totally disabled based on Individual Unemployability. To qualify, veterans must submit a copy of their VA rating decision. Veterans must be service connected to qualify. Veterans who do not meet the eligibility requirements identified above must pursue a discharge through one of the other two sources. Under this discharge program there is no three year income monitoring.
SSA: Claimants who are eligible for Social Security Disability Insurance or Supplemental Security Income may qualify for a TPD discharge. Claimants must provide a copy of the SSA award notification letter or an SSA Benefits Planning Query (BPQY). Claimants only qualify for a discharge based on this documentation if it shows their next scheduled disability review will be five or more years from the date of their last SSA disability determination. A BPQY may be requested by calling 1-800-772-1213 or by visiting www.ssa.gov.
Physician’s certification on the TPD application form: Claimants may qualify for a TPD discharge by having a physician complete Section 4 of the application. The physician must certify a claimant is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that either can be expected to result in death, has lasted for a period of at least 60 months (five years) or can be expected to last for a continuous period of at least 60 months (five years).
Important: If a discharge is granted based on SSA documentation or a physician’s certification, the U.S. Department of Education will monitor the applicant’s status for three years following the date the discharge was granted. If the applicant does not continue to meet eligibility requirements at any time throughout this period, the U.S. Department of Education will reinstate the claimant’s obligation to repay the loan(s) or complete the TEACH grant program.
Will I Be Eligible For New Loans Or Teach Grants?
If the Department grants a TPD discharge of your federal student loans or TEACH Grant service obligation, you will not be eligible to receive a new Direct Loan, Perkins Loan, or TEACH Grant in the future unless:
You obtain a certification from a physician that you are able to engage in substantial gainful activity; and
You sign a statement acknowledging that the new loan or TEACH Grant service obligation cannot be discharged in the future on the basis of any injury or illness present at the time the new loan or TEACH Grant is made, unless your condition substantially deteriorates so that you are again totally and permanently disabled.
In addition, if your discharge was granted based on documentation from the SSA or a physician’s certification and you request a new Direct Loan, Perkins Loan, or TEACH Grant during the 3-year post-discharge monitoring period described earlier, you must resume repayment on the previously discharged loans or acknowledge that you are once again subject to the terms of your TEACH Grant service obligation before you can receive the new loan or TEACH Grant.
You may or may not get a letter from the loan provider if you are eligible for your VA Rating or your SSDI/SSI eligibility. You can ask to not have the loan forgiven if you intend to take more loans out. For instance, additional PARENT Plus loans.
It typically takes less than 30 days to complete the review of the TPD discharge application.
Knowledge on Federal Student Loan Forgiveness...Don't Panic...Just be Prepared for The Sunset...Maybe
Section 11031 of the Tax Cuts & Jobs Act prevented student loan discharges through total and permanent disability (TPD) from being added to the borrower’s gross income. Under the new law, discharged student loans are no longer seen as taxable income if the borrower is applying for disability discharge. This is a hugely beneficial change for disabled borrowers who want to apply to have their federal student loans discharged. Previously, many borrowers elected not to apply for discharge and remained in an income-driven repayment plan because they feared being left with a hefty tax bill that they couldn’t afford.
Changes from the Tax Cuts and Jobs Act took effect on January 1, 2018 and are slated to sunset after December 31, 2025.
That means unless Congress decides to continue the current practice of not adding discharged Federal student loans to a borrower's gross income, student loan discharges after January 1, 2026 may be considered taxable income.
If you have a Federal student loan you plan on having discharged due to being 100%, TDIU or collecting SSDI or SSI after the sunset date of December 31, 2025 please plan on the additional tax burden now.
For all we know, the tax benefit may continue and you have just saved up for a nice new Tesla on January 2, 2026. ;-)