Congratulations to my friend Pam for the complete discharge of her Student Loans! My friend Pam in her mid 50’s has three adult children, is divorced, and because of a stroke a few years ago, is unable to work and is living on SSDI on a monthly income of under $700.00!
Pam attended a now defunct college in an attempt to earn an associates degree in home health care. Her loan with Loan Servicer NAVIENT (formerly Sallie-Mae) showed an unpaid principal amount of $19,390.98 with unpaid interest owing at $6,642.12. The loans were over 10 years old, and as her records indicated, she had never made a single payment.
Based on the fact Pam was disabled (under Social Security Disability Insurance) SSDI, she was not required to make payments towards these student loans. However, there is what I call a “maturity death trap” with SSDI deferments!
Let me explain — One day Pam and I were talking and she happened to mention that she had attended “school” to get a home health care aid certificate (or degree). I asked her if she owed any loans to anyone for this – because I knew of her financial situation.
She told me in fact she did owe a lot of money for school loans, and had no way to pay them off – and that since she was on “disability” she was not required to make payments. Well I can relate to that from my own story (see my other articles – regarding my disability and loan discharge of $130,000.00).
I proceeded to share a bit of my story about my student loan debts and how I was able to win my case in Federal Bankruptcy Court in Virginia in 2016. I told Pam how that while I was on SSDI I did not have to make any payments but that the interest still accrues and is added to the total debt.
I also told Pam that once I reached full retirement age (of 65), the Social Security Agency “switched” me off of SSDI and began to pay “straight” social security annuity. That meant I was no longer on SSDI and no longer under a “deferred” loan status for my student loans! Suddenly I was receiving monthly billing statements for payments on those loans.
Initially the statement was in the neighborhood of $80,000.00 and change! But in the proceeding years that balance continued to climb — while all the while, my small retirement annuities were being “GARNISHED” to the tune of over $300.00 a month!
What was striking was that the interest was accruing each month adding to the loan balance — of which the $300.00 being ‘garnished’ from my retirement checks DID NOT even cover the interest due each payment! Talk about a “DEATH TRAP”!
As I explained this conundrum to Pam, she was shocked. She had no idea she would be taken off of SSDI when she reached the Social Security Age requirement, and she had no idea she would then have her meager annuity check ‘garnished’ for some amount — Most likely the maximum currently allowed which is set at 15% of your gross social security payment!
I then proceeded to tell Pam about her options. I gave her keys to websites with information about seeking “loan forgiveness” (which I do not believe is a real or viable possibility for most debtors! — more on that in my other blog articles). I pointed out that since she is 100% disabled she may want to try and apply for a TPD.
As I recall, this conversation I had with Pam was sometime late last summer or early fall. The other week when I was at her place to do some repair work on her home, she showed me a letter from nelnet (The loan administrative branch of the Department of Education, D.O.E.) Education Planning and Finance Administration, D.O.E.
Note: If you need to see what you owe on your loans you can go online to nelnet here: https://www.nelnet.com/welcome
OK back to the story — Pam showed me a letter dated January 19, 2018 from nelnet.
The letter states “The U.S. Department of Education (the Department) has completed review of your Total and Permanent Disability (TPD) discharge application requesting discharge of your William D. Ford Federal Direct Loan (Direct Loan) Program loan, Federal Family Education Loan (FFEL) Program loan, Federal Perkins Loan (Perkins Loan) Program loan, and/or your teacher Education Assistance for College and Higher Education (TEACH) Grant Program service obligation….”
“Nelnet assists the Department in administering the TPD discharge process, and we will communicate with you on behalf of the Department concerning your discharge request.”
“Effective 01/19/2018, the Department has approved your application for discharge of the federal student loan or TEACH Grant service obligation identified below on the basis of your total and permanent disability. We will notify you again when we have discharged your loan and/or TEACH Grant service obligation.”
There it is! Pam has been granted a discharge of her debts under the TPD!
The nelnet letter goes on with information regarding return of any payments made or received after the “disability date” (SSDI notice of award date), and if should you question the loan amounts etc. you will need to inform the Department, or if you continue to receive bills from loan holders (and I assume loan servicers).
IMPORTANT NOTE REGARDING A TPD DISCHARGE!
The 3-year post discharge monitoring period!
The letter goes on to state: “As stated above, the Department has approved your application for discharge on the basis of your total and permanent disability and your loan …. will be transferred to us to be discharged. You will be subject to a monitoring period that will end three years from 01/19/2018. We will reinstate your obligation to repay your discharged loan … if at any time during this monitoring period:
You have annual employment earnings that exceed the poverty Guideline amount for a family of two in your state, regardless of your actual family size (see www.disabilitydischarge.com for additional information);
You receive a new Direct Loan, Perkins Loan or TEACH Grant;
You are disbursed a Direct Loan, Perkins Loan, or TEACH Grant received before the discharge is made, and you do not return the full amount within 120 days of the disbursement date or;
You receive a notice from the SSA stating that you are no longer totally and permanently disabled, or that your disability review will no longer be the 5-year or 7-year review period indicated in your SSA notice of award for SSDI or SSI benefits.
The disclaimers continue…. But you get the idea! You have to follow and comply with ALL of the requirements and obligations laid out in this letter or you can end up OWING the full amount with the interest (however, they do state that while you will be required to pay the loan amount with the interest, any additional interest that could have accumulated during that period will not be owing).
Note: the full details of what is required post discharge of your loan and interest can be found here: https://www.disabilitydischarge.com/TPD-101
HERE IS THE ONE CAVEAT I DISLIKE ABOUT A TPD DISCHARGE!
While the TPD discharge removes the debt of the student loan and the accumulated interest on those loans, the one serious drawback is this — At the end of the THREE YEAR MONITORING PERIOD — You will be responsible for the INCOME TAX on the AMOUNT DISCHARGED! Yep! The IRS will want the TAXES for the loan and interest amount that you received as a loan discharge!
Here is what is stated regarding the:
TAX IMPLICATIONS AFTER APPROVAL & DISCHARGE OF YOUR LOAN BALANCES!
“The Department reports the discharge of any loan debt totaling $600.00 or more to the Internal Revenue Service (IRS) for the year that the loan was discharged. If your loans are discharged, we will send you an IRS Form 1099-C that will identify the total amount of your discharged debt. The amount of the discharged debt will be considered income for federal tax purposes and possibly for state tax purposes. You may want to consult with a tax professional to determine how this may affect your personal taxes.”
So… what are my final thoughts on the TPD?
My final thoughts on the TPD are that it should be considered as one of the many options you as the debtor look long and hard at. Bearing in mind it is based on your proving that you are permanently and totally disabled according to the criteria laid out in the application. The TPD is based on legitimate documentation and verification in most cases from your assessment and award by the Social Security Administration (SSA) of what is known as SSI, SSDI (Social Security Disability Insurance). Meaning you would first have to have been “awarded a claim” from SSA.
From the TPD webpage here is what is considered qualifying criteria for a TPD:
You can show that you are totally and permanently disabled in one of the following three ways:
1 – If you are a veteran, you can submit documentation from the U.S. Department of Veterans Affairs (VA) showing that the VA has determined that you are unemployable due to a service-connected disability;
2 – If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within 5 to 7 years from the date of your most recent SSA disability determination; or
3 – You can submit certification from a physician that you are totally and permanently disabled. Your physician must certify that you are unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that:
Can be expected to result in death;
Has lasted for a continuous period of not less than 60 months; or
Can be expected to last for a continuous period of not less than 60 months.
The requirements are quite extensive and in my case prior to going to the route of Bankruptcy with an Adversary Proceeding to prove Undue Hardship, I had applied for a TPD twice and was denied twice.
My approach from that point forward was to investigate other means of discharge which included the so-called LOAN FORGIVENESS PLANS, INCOME BASED PAYMENT PLANS, the so-called ZERO DOLLAR 25-year PLAN and others!
What I soon discovered was that my one and only REAL DISCHARGE REMEDY was filing for Chapter 7 Bankruptcy followed immediately by the filing a what is called an ADVERSARY PROCEEDING (basically a lawsuit challenge to the “non-discharge” of student loans as part of a normal bankruptcy proceeding).
The fact is that, yes, student loan debts can be discharged as part of a personal debt bankruptcy when you take the extra steps necessary using a “Complaint” by way of the Federal Law under USC 11 §523(a)(8) Undue Hardship Clause, “Exception to Discharge” — You see there is always an exception to the rules!
Student loan debts are not easy to deal with even when you are employed! Being disabled and living on poverty level income and dealing with student debt is nothing short of a continuous nightmare! For Pam the discharge of over $26,000.00 was nothing short of a dream come true.
I would like to ask you to please comment on this post. I would also like to say that if you are in need of help with your student loan debt I am willing to try and offer you some assistance. I am not an attorney, I cannot give legal advice, but perhaps I can in some way offer you “keys” to dealing with your situation? I have done so for others and as time permits I will offer the same to anyone who finds this blog insightful.
Thanks for reading — be sure to check out my other blog articles. Feel free to add comments and I will reply as time permits. Richard