Managing Student Loans: Loan Forgiveness for Disability or Death

After paying on student loans for almost seven years, Carla had an accident that left her unable to continue working in the accounting department of the company she had joined right out of college. Her health was compromised, and she found that she was unable to work at any job enough that she could support herself. 

Carla applied for disability payments from the Social Security Administration and was approved. Even so, her student loans continued to call her for their $400 per month payments, which constituted a large chunk of her $2,000 a month disability check. She still owes $10,000 in Direct loans and $3,000 for a private loan she took out her senior year to help pay her expenses to study in Paris for a semester.

Does Carla have any options? Indeed she does. If a student loan borrower becomes disabled to the point where she can no longer obtain or keep a regular job, she may qualify to have her federally-backed student loans forgiven or canceled. 

Disability Discharge

If a borrower of a Direct Loan, FFEL, PLUS or Perkins loan becomes disabled to the point that prevents them from obtaining or keeping gainful employment, the borrower may be able to obtain relief from the student loan obligation. To obtain relief from student loan obligations due to a disability, Carla must show that her disability is essentially total and permanent. To do that, the borrower can do one of three things:

1. Carla can submit documentation from the Social Security Administration of a determination that she is eligible for Social Security Disability Income or Supplement Security Income.
2. Carla can submit documentation from her physician that she is unable to obtain gainful employment due to a mental or physical impairment that
3. Can be expected to result in death,
4. Has lasted for a continuous period of not less than 60 months, or
5. It can be expected to last for a continuous period of not less than 60 months.
6. If Carla were a veteran, she could submit documentation from the Veteran’s Administration showing that she is not employable due to a service-related injury.

The information that a borrower provides is specific and detailed. Visit the Department of Education’s disability site to learn what you or your physician must provide and how to apply.

Monitoring and Later Reinstatement of Discharged Loans

Even if the Department of Education determines that Carla's disability is total and permanent, that decision could be reversed if she later regains health or loses her Social Security eligibility (or Veteran’s disability determination if that applied).

For three years after the discharge is granted, the Department of Education will monitor the borrower to ensure that she retains her discharge eligibility. A borrower’s loans may be reinstated if she:

• Earns more in a year that the federal poverty guidelines for a family of two.
• Receives a new student loan through the Perkins or the Direct programs or a TEACH Grant
• Receives and does not return a disbursement under a prior Direct or Perkins loan or TEACH Grant
• If the Social Security Administration sets the review period to less than the 5-7 year standard or determines that the borrower is no longer totally and permanently disabled.

Discharge Due to Death

If Carla died as a result of her accident, or when she later dies, her federal student loans will be forgiven. Likewise, if Carla's parents had taken out a Parent PLUS loan on her behalf, the loan will be forgiven when the parent or a representative provides the Department of Education with a certified copy of the death certificate.

For lots more information on managing your student loans during difficult financial times, see our articles on the following issues: