Student loan debt is a major financial consideration that affects millions of Americans, especially those who cannot afford repayment.

According to Forbes, more than 45 million Americans have student loan debt. The minimum payments and rapid interest accrual can make repayment very challenging. Worse yet, most of these loans are extremely difficult to discharge in bankruptcy, so even when borrowers hit financial rock bottom, relief is not always available. Our legislators are slowly realizing that this situation is untenable and now there may be a way to discharge student loans without filing bankruptcy, at least for disabled borrowers.

The US Department of Education offers an administrative discharge of federal student loans and TEACH Grants if a borrower has a total and permanent disability. This means qualified applicants can discharge these obligations without filing bankruptcy.

The application is available to download online in both English and Spanish, though it must be mailed upon completion along with supporting documentation, such as a certification from a licensed medical doctor that the applicant is totally and permanently disabled. Applicants may designate a representative, such as a family member, attorney, or some other third party to complete the application on his or her behalf. The Social Security Administration and Department of Veterans Affairs can also provide documentation directly to the Department of Education on behalf of any applicant.

Sometimes, no application is necessary. Veterans who have a service connected disability that is 100% disabling are automatically eligible for a discharge and the Department of Education simply informs the holders of the student loans that the debt is discharged. The Department of Education will also invite borrowers to submit documentation if they receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits and whose next scheduled disability review will be within 5-7 years from the date of their most recent disability determination.

Someone is “totally and permanently disabled” if he or she is unable to engage in any substantial gainful activity in any field of work by reason of a medically determinable physical or mental impairment that (1) can be expected to result in death, (2) has lasted for a continuous period of not less than 60 months, or (3) can be expected to last for a continuous period of not less than 60 months. “Substantial gainful activity” means “a level of work performed for pay or profit that involves doing significant or mental activities or a combination of both.” Borrowers may still be eligible for discharge even if they continue to earn income, as long as their income remains below the poverty guideline for their state for a family size of two (regardless of actual family size). In Arizona, the 2020 poverty guideline for a family size of two is $17,240 per year. The guidelines are updated annually and can be found here.

After submitting the application, the Department of Education will contact the holders of all federal student loans and/or TEACH Grants and instruct them to suspend collection activity while they consider the application. This means that the applicant’s obligation to pay is temporarily paused. If the loans are already in default and payments are being collected by a wage garnishment, the garnishment may continue until and unless the application for discharge is approved.

Next, the Department of Education evaluates the application along with any supporting documentation to verify that the applicant is eligible for a discharge. The Department may contact the applicant for any additional necessary documentation. Once all required documentation is received, the Department makes a final decision.

If approved, the process doesn’t quite end there. A three-year, post-discharge monitoring period begins on the date that the discharge is granted. Though a borrower will not have to repay loans or TEACH Grants during this period, he or she must meet certain conditions during the monitoring period in order to keep the discharge. Conditions include but are not limited to (1) notifying the Department of any changes to the borrower’s address or telephone number, (2) notifying the Department if annual earnings exceed the poverty guidelines for a household of two in the borrower’s state (regardless of actual family size), (3) providing documentation to prove annual earnings from employment; (4) notifying the Department if the borrower receives notice from the Social Security Administration that they are no longer disabled or that their continuing disability review will no longer be the 5-7 year period previously indicated. The Department will reinstate the obligation to repay the loans or TEACH Grant if the applicant fails to meet these conditions.

Remember that the administrative discharge only applies to federal loans and TEACH Grants. Borrowers with private loans may need to consider bankruptcy to obtain a discharge.

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