Death and Disability Impact on Student Loans
Federal Student loan debt is always fully discharged on death. This is an important fact to understand for those that are handling the estate of a deceased borrower. It is also critical to understand that as the spouse of the deceased you will not be forced to carry the burden of the outstanding debt. For disability on the other hand getting full forgiveness is not very common unless there is a severe disability. But for different levels of disability there certainly is relief available to those afflicted. These programs are made available for federal student loan programs, private programs have their own rules and ways in which they address disability. Private loan borrowers should seek guidance from their loan issuer.
There are countless rules that specifically relate to obtaining student loan forgiveness as a result of a disability. The first thing that needs to be determined and agreed to between the borrower and the loan issuer is the classification of the borrowers disability. For total forgiveness and not simply a payment deferral or forbearance the borrower must be classified as totally and permanently disabled.
Total and permanent disability is a condition that needs to be certified by a Doctor. The Doctor must explicitly state that the person is unable to work in any capacity and that the condition is likely to result in death and/or last for a period greater than the next five years. For military veterans the standard is the same but the veteran is not required to have the condition certified by a Doctor. This full discharge is available to Federal Family Education Loan (FFEL) borrowers, Federal Direct Loan borrowers, and Perkins loan borrowers. Those with the parent PLUS loans are only eligible if they are disabled themselves and not if the child is disabled.
It is common that with all federal loan disability applications that the Doctor that provided the certification of disability will receive a number of follow up questionnaires and letters that must be responded to in order to complete the disability application. It is important to let the Doctor know to expect this and to let them know the critical nature of a timely response.
Under most of the discharge rules you must not be able to work in any capacity to seek permanent relief from the loan debt. The relief cannot be sought if you are simply not able to work and earn money in the occupation for which you were trained and obtained the loan to work within. In fact, under the FFEL disability program they put you on a 3-year temporary discharge program after receiving the initial Doctor certification. During this time you are not allowed to work at all nor are you allowed to look for work. After the three year trial period, if you are still disabled and not earning an income then they will allow the debt to be fully discharged due to disability.
One last point to keep in mind, if you are seeking a discharge due to disability you cannot take out additional student loans, even if for retraining or a new career. If you do, then most loan programs will disqualify you from the initial discharge seeing that you are amidst retraining and therefore it is foreseeable to them that you will be able to work again and earn an income in the future.
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