What does the promise of student loan forgiveness for vets mean?
Last week, President Trump signed a directive to the Department of Education ordering it to “eliminate every penny of federal student loan debt” for American vets who are totally and permanently disabled. This could be a great relief to disabled vets who have been struggling to pay their student loans on limited income.
Student loans are generally not dischargeable in bankruptcy. However, the Education Department has a program in place to discharge federal student loans for vets with total, permanent disabilities.
About 50,000 vets are estimated to qualify for that program. However, only about half have received the benefit due to a burdensome application process. The president’s new directive is meant to make this existing program more accessible.
According to the Associated Press, the program will wipe out about $30,000 in educational debt, on average, for each of the approximately 25,000 vets who will be eligible. The directive orders the Department of Education to set up an expedited process to discharge the debt “with minimal burdens.”
The president added that those receiving this relief will owe no federal taxes on it. (The IRS usually treats loan repayments as gifts or income, causing the recipient to incur a large tax bill.) The president urged states not to tax these discharges.
Do I qualify for a student loan discharge?
The Department of Education’s Total and Permanent Disability Discharge (TPD) program is already in place, although it is not yet clear whether the application process will be simplified by the presidential order. The TPD program discharges only federal student loans (not private ones), including:
- William D. Ford Federal Direct Loan Program loans
- Federal Family Education Loans (FFEL)
- Federal Perkins loans
- TEACH Grant service obligations
To apply, you must submit a TPD discharge application and include documentation that you meet the program’s definition of totally and permanently disabled. This documentation can include:
- VA documentation that you were granted a disability determination due to 1) a service-connected disability that is 100% disabling, or 2) you are considered totally disabled based on an individual unemployability rating
- If you’re eligible for Social Security Disability benefits, 1) a copy of the Social Security Administration’s notice of award, or 2) a Benefits Planning Query indicating your next disability review will be five to seven years or more from the last disability determination
- A doctor’s certification stating that you can’t engage in any substantial gainful activity due to a physical or mental impairment that a) is expected to result in death, b) has lasted continuously for at least 60 months, or c) can be expected to last for a continuous period for at least 60 months
A few important notes
As part of the application process, you can notify Nelnet, the Education Department’s service provider, that you want to apply for a TPD discharge. This notification can be by phone or email. When you notify Nelnet, the payments on your student loans will stop for 120 days.
Moreover, if your TPD discharge is approved, Nelnet will order the holders of your loans to return any payments you made after the effective date of your VA disability determination, the date Nelnet received your SSA documentation, or the date of your doctor’s certification.
Although you can apply for this discharge on your own, you are allowed to designate a representative, such as an attorney, to submit your application.
