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.

What is considered a total and permanent disability?

Your disability or conditions may be eligible if it:

  • can cause death, OR
  • has lasted for 5 years OR
  • is expected to last for at least 5 years

If one of these applies to you, you may want to apply for a disability discharge.

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 disability with documentation from the Department of Veterans Affairs (VA). You just 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, your award letter may be enough. You need an award letter that says your disability will be reconsidered by Social Security in 5-7 years.

Many people have an award letter saying their disability will be looked at again in 3-5 years. IF this is you, you will need to use option three: 

3. You can submit a doctor certification form on page 3 of the Disability Discharge application packet.  Your doctor must check the box saying you have a disability and that they expect it to last at least 5 years.

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
P.O. Box 87130
Lincoln, NE 68501-7130

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.
  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 don't meet the requirement at any time during the 3 year monitoring period, your loans will be reinstated.
    • UPDATE: In August 2021, the Department of Education announced that it was indefinitely suspending the monitoring period (previously, the monitoring period had been suspended just for the pandemic national emergency). The Department has indicated that it wants to permanently get rid of the monitoring period, but that change has not taken place yet.


What are the requirements of the discharge monitoring period?

During the 3-year monitoring period, you need to make sure you update your address and contact information with your loan servicer. You will get a notice every year asking you to verify that your situation hasn't changed. 

  • You have yearly earnings from employment that are more than the Poverty Guideline amount for a family of two in your state. Your actual family size doesn't matter.
  • You get a request to provide the Department with documentation of your annual earnings from employment; or
  • You get a notice from the SSA that you are no longer totally and permanently disabled.
  • Or a notice that your disability review will no longer be the 5-year or 7-year review period.

If you do not provide this information, your loans may be reinstated.

The department may also reinstate your loans if:

  • You get a new William D. Ford Federal Direct Loan (Direct Loan) Program loan, Federal Perkins Loan (Perkins Loan) Program loan, or TEACH Grant;
  • A disbursement of a Direct Loan, Perkins Loan, or TEACH Grant that you gotbefore the discharge date is made, and you don't return the full amount within 120 days of the disbursement; or
  • You get a notice from the SSA that you are no longer totally and permanently disabled, or that your disability review will no longer be the 5-year or 7-year review.

Federal Taxes, the IRS and your Loan Discharge

When a debt is discharged, the amount that was discharged will count as income in the year it was approved.

You will get a 1099-C after your loan is discharged. You need to file your 1099-C with your federal tax return for the year your loan was discharged.

Am I responsible for filing the 1099-C at the beginning or the end of the “post-discharge monitoring period”? 

If you submitted your application for discharge before July 1, 2010, you will need to file your return at the end of the 3 year monitoring period.

If you submitted your application for discharge after July 1, 2010, you will need to file your return in the year your loan discharge is approved (before the 3 year monitoring period).

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