Discharging student loans due to disability

Migraineurs have enough to worry about without facing the financial burden of student loans. Our best laid plans to increase our income by getting an education can be ruined by migraine disability. If you find yourself unable to work because of disabling migraines, you may qualify for a Total and Permanent Disability Discharge.

How to apply

NelNet is the Total and Permanent Disability servicer for the Department of Education. They manage everything from applications to discharge and appeals. To begin the application process, you may apply online, download the application forms, or request them via email or call 888-303-7818 to request forms in the mail. If you need help completing the application forms, you may appoint a representative to work with NelNet on your behalf.

There are three ways to prove Total and Permanent Disability

  1. Service-connected disability documented by the Veteran’s Administration
  2. A favorable disability determination from the Social Security Administration showing that your next review will be 5-7 years from the date of determination
  3. Certification from doctor that your condition has lasted for at least 60 months, will result in death, or will last for at least 60 months and prevents you from substantial gainful activity (SGA)

Once your application is received

NelNet will contact your lender. You will not be required to make any payments during the determination process and all collection activity will stop. NelNet will review your application to ensure you have provided all the necessary documentation and meet eligibility for discharge. Then your application and supporting documentation will be forwarded to the Department of Education for approval. You will be notified in writing of their decision. If approved for discharge, your loans will be transferred to Nelnet for discharge. Service-connected disabilities will be discharged immediately, while all others are subject to a 3-year monitoring period.

During the monitoring period, you must notify NelNet of any of the following:

  • change of address or phone number
  • change in disability status
  • if you obtain new student loan
  • you earn income over the Federal Poverty Guidelines for a family of two:
    • $15,510 (lower 48)
    • $19,380 (Alaska)
    • $17,850  (Hawaii)

You can become ineligible for discharge during the monitoring period if your income exceeds the limits or you receive a letter from the Social Security Administration informing you that you are no longer disabled. You may also become ineligible if you obtain new student loans.  If you become ineligible during the monitoring period, payments resume with accrued interest.

If your application is denied

NelNet will contact your lender(s). Payments and collection activity will resume. You will have one year from the date of determination to provide additional information supporting your claim for discharge. After one year you must reapply.

Tax implications of discharge

Whenever any debt over $600 is discharged, it must be reported to the IRS as taxable income. If this is the case for your discharge, you will receive Form 1099-C that must be submitted with that year’s income tax return. Please consult a tax professional for the tax implications of a student loan discharge. In some limited cases, you may be eligible for insolvency which would result in the discharged amount not being taxed.  For more information, see IRS Publication 4681. Insolvency is claimed using Form 982. Your tax preparer can help with this process. Also, state income tax reporting rules vary, so make sure your tax professional is knowledgeable about your state of residency as well.

Because of the tax implications, this type of discharge is not for everyone. Each individual should carefully consider their options before applying. The results are permanent and can provide either significant debt relief or a huge tax bill. When in doubt, get professional tax advice before submitting your application.1-2

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This article represents the opinions, thoughts, and experiences of the author; none of this content has been paid for by any advertiser. The Migraine.com team does not recommend or endorse any products or treatments discussed herein. Learn more about how we maintain editorial integrity here.

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