Total & Permanent Disability 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 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 U.S. Department of Education (ED) to show that you are totally and permanently disabled. The Department of Education will evaluate the information and determine if you qualify for a TPD discharge.
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Proving Permanent Disability
Below are the different ways you can prove Total Permanent Disability.
You can show that you are totally and permanently disabled in one of the following three ways:
- If you are a veteran, you can submit documentation from the U.S. Department of Veterans Affairs (VA) showing that the VA has determined that you are unemployable due to a service-connected disability.
- If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination.
- You can submit certification from a physician that you are totally and permanently disabled. Your physician must certify that you are unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that
- 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.
- Each option for showing that you are totally and permanently disabled has specific requirements for the supporting documentation that you must submit with your TPD discharge application.
How To Apply For a TPD Discharge
Gather the documentation that will be used to prove your permanent disability. Once you apply, the DoE will contact your lenders and stop all collection activity on your federal student loans until a determination has been made on your application. The DoE will then review your application and issue a determination. This process typically takes 3-5 months.
- If Approved – Your lenders will be contacted by the DoE with instructions that your loans are being discharged. They will also be instructed to return any money paid by you on your student loans from the time your disability date. Your “disability date” is determined based on the date and type of documentation you provided to show that you are totally and permanently disabled.
- If Denied – The DoE will instruct your lenders to continue collection activity for your loans. You will also receive a letter explaining the reason why your disability application to have your loans discharge was denied.
Things To Consider On Disability Discharged Loans
- If any of your loans are in default and payments are being collected by wage garnishment and/or Treasury Offset, the garnishment or offset will continue. If your request for TPD discharge is approved, the wage garnishments and/or Treasury Offset Payments will be discontinued.
- If you are granted a TPD discharge of your federal student loans you will not be eligible to apply for Federal Student Loans a new Direct Loan, Perkins 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 o cannot be discharged in the future on the basis of any injury or illness present at the time the new loan is made, unless your condition substantially deteriorates so that you are again totally and permanently disabled.
Any loan debt totaling $600.00 or more will be reported to the Internal Revenue Service (IRS) as taxable income for the year that the loan was discharged.
Taxes On My Discharged Loans
Having your loans discharged based on your disability might leave you with a pretty large tax bill. Depending on the amount being discharged and your tax bracket, it might be a better option to consolidate your loans and apply to enroll in an income based repayment program (IBR).
Under an IBR program your payments will be based around your income and living circumstances and if your income is low or your are unable to work or unemployed , your monthly payments can be $0.00.
Under this program, any outstanding balance on your loans will be forgiven after 25 years delaying the tax liability on the amount forgiven on your loans until that time.
It is important to note that contrary to a disability discharge, the IBR program requires that every year and for the term of the program, you submit proof of your income and living circumstances. Your new monthly payment for the coming year could be adjusted , go up or down, if your income has significantly changed. If when you first applied you qualified for a $0.00 monthly payment and your income did not change significantly or went down instead of going up, your payment will remain at $0.00 per month for the coming year.
Give us a call to explore the different options. We can go over the details on your specific circumstances and determine what option is best for you.
Give us call at 954-780-8266 and get started today!