Disability Discharge: A Closer Look

Can't pay your federal student loans because you are disabled and can't work? Do you expect these disabilities to last for a while?  You may be eligible for what is called a Total and Permanent Disability (TPD) discharge of your student loans.

What loans are eligible for disability discharge?

This disability discharge is only available for these student loans:

  • Federal Family Education Loan Program (FFEL)
    • Subsidized and Unsubsidized Stafford Loans
    • PLUS Loans for Parents
  • Federal Direct Loans
  • Federal Perkins Loans
  • TEACH Grant Service Obligation

Don't know what kind of loan you have – here's how to find out.

To qualify for a Total & Permanent Disability (TPD) Discharge, you need to show documentation from one of these three places: 

  • Veteran Affairs (VA) 
  • The Social Security Administration (SSA) 
  • A physician certification (by an MD, DO, NP, PA, or certified psychologist) 

How do I apply?

  • You can apply for a disability discharge through Federal Student Aid’s Disability Discharge website.
  • Or you can submit a paper application to the Department of Education.
  • Most of the information you'll need for this application is very basic.
  • The one piece that can be tricky is knowing what to submit to prove that you have a disability.

How do I show that I have a disability?

There are three ways to show that you have a disability:

1. If you served in the military, you can show documentation from the Department of Veterans Affairs (VA). You need proof that you get disability benefits because you are unemployable because of a service-connected disability.

2. If you get Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit your Benefits Planning Query (Form 2459), or other documentation if it shows that you have been determined disabled at least five years ago. 

If you do not receive any disability benefits, or your award letter says your disability benefits will be reviewed more frequently than every 3 years, you need to use option three to provide proof of your disability. 

3.  You can submit a physician certification form on page 3 of the Disability Discharge application packet.  Your physician must check the box saying you have a mental or physical impairment that prevents you from being able to work, and that the disability can either be expected to result in death, has lasted five years, or is expected to last for at least five years. You can have an MD, DO, PA, NP, or certified psychologist complete the form. 

How do I submit my application?

Submit your application to the Department of Education, not your loan servicer. You should send your application to:

U.S. Department of Education - TPD Servicing
P.O. Box 87130
Lincoln, NE 68501-7130

You can also email your application to [email protected] or fax it to 303-696-5250. If you need to call Nelnet about the disability discharge process or application, you can call them at 1-888-303-7818. 

What happens after I submit my application?

After the Department of Education gets your application, they will:  

  1. Contact the holders of your federal student loans and/or TEACH Grant Service Obligation and tell them to stop collecting from you. This is while they figure out if you are eligible. This means you will not need to make payments on your loans while they look at your application.
  2. They will review your application and supporting disability evidence. Nelnet or the Department of Education may reach out to you if they need more information. 
  3. Once they have all of your documents and have determined that you may meet the eligibility requirements for a disability-based discharge, they will make a final decision.

I have been approved! Now what?

After you are approved, your next steps depend on why you were found eligible.

Option 1: You were found eligible because of VA Unemployability:

  • The Department of Education will notify the holders of your loans.
  • After they are notified, they will discharge your loans.
  • The Department of Education will also tell the loan holders to return any loan payments you made after the date the VA found that you have a disability. This date is the “effective date” of your unemployable award from the VA.

Option 2 and Option 3: My discharge application was submitted based on Social Security or physician statement.

  • The Department of Education will notify you and the loan holders.
  • They will tell the loan holders to return any loan payments you made after you were awarded SSI or SSDI, or after your doctor certified your discharge application (depending on the kind of proof of disability you submitted).
  • Your loan holders will transfer your loans and/or TEACH Grant service obligation to Nelnet for discharge.
  • You will then be subject to a 3-year post-discharge monitoring period that begins on the date the discharge is approved.
    • If you take out any new federal loans within the three year post-discharge monitoring period, your loans will be reinstated.
    • If you don’t take out new loans, your discharge will officially go through at the end of those 3 years.  

The department may also reinstate your loans if:

  • You get a notice from the SSA that you are no longer totally and permanently disabled.

You can learn more about disability discharges here: https://www.studentloanborrowerassistance.org/for-borrowers/dealing-with-student-loan-debt/loan-cancellation-forgiveness-bankruptcy/cancellation-forgiveness-options/total-permanent-disability/  

Federal Taxes, the IRS and your Loan Discharge

Usually when a debt is discharged, the amount that was discharged will count as income in the year it was approved. But between 2021-2025 if you discharge a student loan the amount will not be counted as income.

Normally you would get a 1099-C after your loan is discharged. You would then need to file your 1099-C with your federal tax return for the year your loan was discharged. You may be able to file for an exception, for example, if you are not able to pay your debts.

You may need help filing your return. Find free tax help in your area.