You graduated from college and found your dream job, but nearly a decade later, a critical injury reduces your ability to work. When you’re dealing with a long-term, debilitating condition, you realize you can apply for Social Security Disability (SSD), but where does that leave your student loan payments? Although you may have heard that SSD discharges your debt, the process isn’t so simple.
First, you need to be approved for SSD – a process that is arduous, complicated and drawn-out, often involving multiple appeals. Post-approval, your loan payments for certain programs can only be forgiven if you’re able to get a “total and permanent disability” (TPD) discharge. If you’re applying for SSD first, what should you know about TPD?
1. TPD and SSD Approval are Similar but Not the Same
At an extremely basic level, SSD is awarded to individuals whose disability is expected to last at least a year. Although you may be able to perform a minor amount of work, what you earn can’t exceed a specific monthly amount. You can also apply for SSD right when you’re diagnosed with the condition, rather than waiting for a specific time before you’re eligible.
By contrast, TPD rules that you can’t do any “substantial gainful activities,” including both physical and mental tasks, as a result of a medically determined physical or mental impairment that’s expected to last at least 60 months, if not resulting in death, or is related 100 percent to a military service-related condition. Furthermore, you must have been living with this condition for at least 60 months to apply.
However, just as some conditions result in automatic SSD approval, one situation yields automatic loan discharge. Individuals classified as “Medical Improvement Not Expected” (MINE) or are specifically awarded SSD with a five- to seven-year review date, are not responsible for paying back federal loans.
2. Separate Applications and Standards
SSD and TPD discharge applications are not one in the same. After you’ve been awarded SSD, you’ll need to fill out and submit a separate TPD Discharge Application, in which your doctor needs to fill out a separate section stating your condition, its severity and all limitations. From there, you send that paperwork to your loan’s servicer, not to the Social Security Administration (SSA).
It’s also important to realize that after you’ve received TPD approval, the process is not over. Your lender monitors your income for three years after, and if you’ve brought in a certain amount excluding your SSD payments during this time, your application may be revoked, and you’ll be expected to pay the loan’s outstanding amount. Your income cannot exceed the poverty limit for a family of two.
Additionally, be aware that if your condition gets better long after the 60-month period and you think about going back to school, lenders may put you through a stricter process and you may still be responsible for your outstanding loan.
3. Eligible Programs
These days, students may take out loans through multiple sources. After graduation, you may find each has its separate terms, which further include how the lender handles disability-related discharge. As a result, only a few programs grant TPD, including D. Ford Federal Direct Loan Program loans, Federal Family Education Loan (FFEL) Program loans, Federal Perkins Loans and Teacher Education Assistance for College and Higher Education (TEACH) Grant programs. Others may allow for discharge, but only under separate conditions or standards.
If you’re receiving SSD benefits and your loans are in default because you’re not able to regularly make payments, you may find that all or part of your monthly government allotment is seized. As a result, relieving yourself of that responsibility can majorly reduce any financial hardship you’re facing. Because of this factor, the SSA has previously reached out to eligible borrowers.
However, your loan doesn’t simply disappear without a trace. Rather, the government still considers it taxable income. When a loan gets discharged, the government department reports any balance above $600 to the IRS. As a result, even if you receive TPD approval, you could still pay high taxes at the end of the year.