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A Conditional Disability Discharge
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If you were totally and permanently disabled in years past, you used to be able to get a letter from a doctor that testified to your condition and that supported your application to have your student loan debt completely discharged. Back in 2002, however, the Department of Education tightened the guidelines and the rules concerning those loans that were being discharged due to permanent and total disability. Essentially, the department said you can be deemed totally and permanently disabled only if:
- You can't earn a living due an injury or illness that is likely to persist indefinitely or that is likely to result in death;
- Your doctor certifies that you are 100 percent disabled based on the definition above; and
- You go through a conditional discharge period for three years, affirming over and over again that you really are disabled.
What all this means is that now, not only do you have to have the support of your doctor attesting to your total and permanent disability, you must also agree to be subjected to a three-year period of close monitoring and scrutiny by the Department of Education.
During this conditional discharge period, the department will check with the IRS and see whether or not you earn income. They'll have you attest, year after year for those three years, that you continue to meet the definition of being disabled. During this conditional period, you don't have to pay back the principal or interest on your student loans. If you continue to be deemed as totally and permanently disabled, at the end of the three-year conditional period your student loans will be cancelled. If, for some reason, you don't continue to meet the cancellation requirements, you must start repaying those college debts.
The department's definition of disability, by the way, is far stricter than even the Social Security Administration. The Department of Education says you're truly disabled only if you can't work or earn money because of a major injury or illness that is expected to continue indefinitely or that is likely to result in death. Again, your doctor has to also sign forms stating this as well.
Now I know some of you will say, "Good grief. I might have suffered an injury or illness that's temporary in nature, but I certainly don't think it'll last indefinitely, and I sure as heck hope it won't kill me!" Well, I hope that you're right. But here's where the rules get a little murkier. The Department of Education won't ban you from working altogether. In the fine print of the rules concerning disability discharges, you'll find that you are allowed to work—and remain eligible for that disability discharge—as long as you don't earn more than the poverty level, which is currently about $13,100 a year.
Based on all of this, I wouldn't blame you for thinking that a disability discharge is impossible to obtain. For a while, that's what Jayne thought too. Jayne is a 38-year-old college graduate who lives in Philadelphia. As an undergrad she attended Temple University, got a degree in journalism, and later earned graduate degrees from Columbia University and the University of Pennsylvania. In pursuing her higher education goals, however, Jayne amassed student loans into the six-figure territory. Unfortunately, in 2003 Jayne suffered a host of maladies. She soon went out on disability from her job, and, after being declared by her doctor as totally and permanently disabled and unfit to work, Jayne applied with the Department of Education to have her student loans cancelled.
As of this writing, Jayne has been through her probation (i.e., the three-year conditional period), and has so far received a conditional discharge of all her outstanding student loans. The exact discharge amount totaled: $122,730.50; accrued interest to be capitalized was $728.31, resulting in a total of $123,458.81 worth of student loans being cancelled.
Getting that discharge, though, was a long and arduous process, Jayne warns. Multiple phone calls to her lender and loan servicer to inquire about disability discharges were exercises in frustration. Customer service representatives from Sallie Mae initially said they had no information about disability discharges, nor could they point Jayne in the right direction to find application forms online. "It's almost like a hidden secret that they don't want you to know about," says Jayne.
And that was only the first part of the battle. Her doctor was asked at least a half dozen times to fax documents that he'd already sent. The physician also had to reword his explanations about Jayne's condition to the department's satisfaction. "It got so bad that every time I would go see him, I would be carrying that form, and he would say: 'Oh this again,'" recalls Jayne.
One time Jayne's entire application was rejected merely because she'd put a line through a date on the form, and inserted the correct date. Despite all the hassles, Jayne knows it was worth it. According to her paperwork, in addition to her discharge amount of $123,458.81, the estimated amount of interest Jayne would've paid during the 30-year term of her loans would have been an additional $162,244.86, resulting in total payments of $285,703.67. "I would've been paying this for the rest of my life," she says.
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