Disabled? How to discharge federal student loans

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Dear To Her Credit,
I'm going to be 65 years old in two months. I owe about $65,000 in federal student loans.

I graduated in 1994 with a bachelor of science degree. However, I have had certified physical and mental issues since then, and have never been able to hold onto a job or pursue a professional position because of my health issues. I tried to get permanent disability, but the Social Security Administration refused my claim. Currently, I am on income deferment (have been since 1994) with my student loans.

Have you any suggestions? I am scared to death. Because of my work history, I would just like to quit all work, but I cannot survive on Social Security benefits and would have to work some to feed and house myself. Even if they would not attach my Social Security benefits (do you know if they would?), would they take a large portion or all of anything I could make?    -- Christine


Dear Christine,
Don't be scared. Creditors, including student loan lenders, cannot take your Social Security benefits. The amount they can take from any other income is limited.

Furthermore, even though there is no automatic student loan discharge based on age, you may be able to have federal student loans discharged based on disability. This is true even if you are not receiving permanent disability benefits.

Federal student loans can be discharged due to "total and permanent disability" in one of three ways, according to the Department of Education's Office of Federal Student Aid:

  1. For veterans, the Secretary of Veterans Affairs determines they are unemployable due to a service-connected condition.
  2. Recipients of Social Security Disability Insurance or Supplemental Security Income benefits can submit a Social Security Administration "notice of award" letter.
  3. A doctor can certify that someone is totally and permanently disabled.

If you want to have your student loan discharged on the basis of the third way, contact Nelnet, the Department of Education's contractor, online or by email at DisabilityInformation@nelnet.net. You can use the online disability discharge application in this self-help packet.

You'll need to have your doctor to sign the form. Let your doctor know that he or she may be receiving requests for more information. Be sure to submit your certificate within 90 days of the day your doctor signs the form.

If Nelnet approves your application, it will send it to the Department of Education for final approval.  If you pass that hurdle, you should receive notice that your loan is discharged. If your application is denied, you can appeal to federal court.

If you're not approved, another option you could consider is bankruptcy. Under normal circumstances, student loans are not discharged in bankruptcy. However, your loans may be discharged if repaying your student loans will prevent you from having a minimal standard of living, your hardship will continue through much of the loan repayment period and you made an effort to repay your loan.

Another way to protect yourself from garnishment by student loan creditors is to check the garnishment rules for your state. If your income is very low, the lender may not be able to take much of anything from your pay.

You might feel better if you have a credit counselor in your state look at your total financial picture and help you figure out your options. Look for a nonprofit agency affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

See related: Restoring credit score after defaulting on student loans

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Updated: 01-19-2019