US student loan forgiveness and disability

[Denise]

"...
The federal Department of Education said on Tuesday it would offer to write off $7.7 billion of student debt owed by disabled individuals, taking a big step to streamline a loan forgiveness program long plagued by bureaucratic delay and inefficiency.

Starting April 18, loan forgiveness letters will go out to approximately 387,000 borrowers who have been identified as totally and permanently disabled by the Social Security Administration, allowing them to sign and file a simplified application form to have their debt forgiven."

https://www.propublica.org/article/...orgives-billions-in-debt-of-students-disabled

I don't know how straightforward this loan forgiveness process will be but if it works it could certainly help!

 

[*GG*]

I had my loans forgiven over a year ago. I recently received a follow up letter, they monitor to make sure you do not go back to work for 3 years, if I recall correctly.

It was simple, and I have not had an issue yet. I think the clincher for me was having the 2 day in row exercise (CPET) test done back in 2010. that was all the evidence one my Drs needed!

GG

 

[Denise]

I had my loans forgiven over a year ago. I recently received a follow up letter, they monitor to make sure you do not go back to work for 3 years, if I recall correctly.

It was simple, and I have not had an issue yet. I think the clincher for me was having the 2 day in row exercise (CPET) test done back in 2010. that was all the evidence one my Drs needed!

GG

You have no idea how glad I am to hear a positive account about loan forgiveness!
I am glad it went smoothly for you!

 

[Michelle]

I too had my loans forgiven -- some in 2014 and the rest in 2015 (between undergrad & grad school, I had multiple loans). Because I've been disabled according to Social Security since 2001, and after changes in the rules in 2012, it was pretty simple. My PCP filled in the form. Only listed CFS as my disabling condition. Mailed it in and a few months later I was informed my loans were being forgiven. I wrote a bit more about it here.

Note, if you own a house or have other assets, loan forgiveness may not be a good option for you. See link above.

 

[actup]

Primary home equity allowance at least in a bankruptcy can range from $10,000 to $125,000 using state homestead exemption values. Texas exempts 100 percent of equity on one acre or less. Federal homestead equity exemption amounts are usually less. You can uses either state or federal values.
Better to discharge student loans in a bankruptcy if that makes sense for you. The IRS will tax any student loan forgiveness amount as a part of your income for that year. Big shock for those who don't know this. Many people with severe chronic illnesses will need to use a bankruptcy to preserve what little they have eventually so might pay to wait if that's a possibility.

No I'm not a bankruptcy attorney drumming up business. Just trying to plan for major probabilities as I have two disabled adult sons one of whom was hit with cfs 5 yrs ago after a bout of severe tonsillitis. The other has a severe autoimmune illness. The one with cfs works part time and has to cut hours each year. Both sons have student loans and I have parent loans. Bankruptcy is looking more and more reasonable since I can protect all of my home equity in my state and provide a roof over our heads. May have overshared a bit but suspect other people with cfs have similar issues. Few people can be sick indefinitely without going down the tubes financially. We do not make good day traders-I stupidly gave that a shot falling asleep when quick reactions were required.

 

[*GG*]

You have no idea how glad I am to hear a positive account about loan forgiveness!

I am glad it went smoothly for you!

Thanks, glad I could help make your day

GG

 

[msf]

Is it normal to talk about loans being forgiven? I thought they were written off? I really don´t like the implication, especially in the context of someone who has a chronic illness.

 

[Denise]

Is it normal to talk about loans being forgiven? I thought they were written off? I really don´t like the implication, especially in the context of someone who has a chronic illness.

I am glad you bring this up.
I have heard the term "forgiveness" used about debts/loans, etc.
But I agree that it is more appropriate to use "written off".
I apologize for using "forgiveness" earlier. (I was cutting and pasting from the links.)

 

[u&iraok]

Is it normal to talk about loans being forgiven? I thought they were written off? I really don´t like the implication, especially in the context of someone who has a chronic illness.

Actually, forgiveness is better, because it's true forgiveness (forgive and forget). A write-off is not:

The term "write-off" is really just an accounting term. What it means is that the lender doesn't count the money you owe them as an asset of the company anymore. Its financial statements will reflect that change. They're required to write off certain bad loans so as not to mislead investors.

So your debt was just written off of one credtitor's books. It hasn't gone off and died, however. Rarely is debt forgiven or forgotten. You still owe the money. The main consequence for you is that there's a good chance that the company reported the write-off to the credit rating agencies, which would hurt your score.

Whether you still owe the money or not is a more difficult question and is tied up in state law. Leslie H. Tayne Opens a New Window. is an attorney concentrating in consumer debt resolution and bankruptcy alternatives in New York. Tayne told me the only way to know for sure that a debt is forgiven is if, "you are either issued a 1099-C forgiven debt form or you get a letter from the creditor stating the account has been resolved. Otherwise it may not have disappeared."

http://www.foxbusiness.com/features/2012/08/16/what-it-means-when-debt-is-written-off.html

 

[msf]

I see, thanks for the lesson. I would still prefer forgotten to forgiven, but I guess either is okay if they actually do it!

 

[msf]

I am glad you bring this up.
I have heard the term "forgiveness" used about debts/loans, etc.
But I agree that it is more appropriate to use "written off".
I apologize for using "forgiveness" earlier. (I was cutting and pasting from the links.)

No need to apologize, I was querying their choice of language, not yours! And it turns out that it was quite standard anyway.

 

[Valentijn]

I don't know how straightforward this loan forgiveness process will be but if it works it could certainly help!

Federal loan forgiveness for permanent disability has been in place for a while, but apparently not implemented in a manner which actually did what it says.

My federal loan is income contingent, so I pay $0. But might as well try to get it forgiven entirely. Unfortunately that leaves me with 2 large private loans, one of which has a co-signor so won't go away even if I declare bankruptcy.

 

[*GG*]

I see, thanks for the lesson. I would still prefer forgotten to forgiven, but I guess either is okay if they actually do it!

Not me, I don't want someone forgetting I owe them money, and then down the road, bringing it up again. Don't need that stress in my life!

GG

 

[actup]

Is it normal to talk about loans being forgiven? I thought they were written off? I really don´t like the implication, especially in the context of someone who has a chronic illness.

I agree but by using that term the IRS can tax the forgiven amount as income except in a chapter 7( full) bankruptcy.

 

[KitCat]

Hi Everyone,

I am new here and this is my first post. I wanted to say....

Please be careful with applying for Disability Discharge. It can cause problems with taxes and the IRS. Please look into it first.

The Obama budget for next year includes a proposal to take care of this problem, so the tax problem may get resolved but this remains to be seen.

In the meantime, you may wish to:

1. Consider signing up for Income Based Repayment instead. This can bring your student loan payments way down. Even down to $0 in some cases. You can enroll in this through the department of education.

2. If you do decide to apply for a disability discharge, look into getting an insolvency exclusion on your taxes so that you do not owe the IRS. If you do not own a house or have much savings, this may be possible for you.

 

[powertool4]

For those that have been approved, how hard is the process? Do they require you to see their own doctor? I would not be able to as I cannot leave the house. I'm also not on SSI but I know my doctor will give me support.

 

[KitCat]

For those that have been approved, how hard is the process? Do they require you to see their own doctor? I would not be able to as I cannot leave the house. I'm also not on SSI but I know my doctor will give me support.

your doctor needs to fill out a form about your condition and needs to be willing to check the box that you are "permanently and totally disabled". It's up to your doctor if he is willing to do this without seeing you in person -- you can certainly ask.

please see my note above about Income based repayment plans, it is much easier to sign up for, and it is better than a disability discharge for some people.

Also, unrelated, but if you are not well enough to leave the house (like me), this is a program I am in that provides free care in your home:

http://www.mdjunction.com/diary/to-...-name-first/how-to-get-free-help-in-your-home

are you applying for SSI? Be careful about applying for a disability discharge while you have an SSI application in the works.... if you win your SSI case and get a really big backpay check this could cause a tax nightmare.

 

[Michelle]

@powertool4 As I mentioned upthread, the process was very simple for me. My doctor filled out the form (you can download it here). Actually my PCP/GP at the time was a nurse practitioner so she needed an MD co-sign. But she only put down CFS as my diagnosis (I have other conditions too like EDS but she didn't include them). There were a couple of questions about functional capacity (in my case, I can walk about 500 steps a day and leave home only a few times a year). And, that was about it. Took about 10 minutes for the two of us to fill out. I mailed it in and a few months later was notified that I was eligible (i.e. that my loans were being discharged). If you've been on disability for 5 years or more, you're quite likely to qualify. If it's been less than that, it will probably be more difficult.

Also as mentioned upthread, if you own a home or other assets, loan forgiveness (or "discharge" is the other term they use @msf) may not be a good option as the amount of your loan that is forgiven is considered income for tax purposes. In that way, I'm "lucky" that I got sick before I'd finished grad school and hadn't been able to do fully adult things like buy a house. Since I have no assets, I'm considered insolvent for tax purposes and owe nothing. If you do own a home, you will be required to pay taxes the year you are told you are "eligible" (i.e. your loan has been discharged).

Also note that once you are notified that you're eligible, you're put on a 3 year probationary period where they check to see if you're earning income equivalent to the Federal Poverty Level for two (regardless of whether you're married with ten kids or single). If you do during that 3 year period, you will automatically be required to resume loan repayment. The silly thing is, you will already have, say, paid taxes on your forgiven loan. Go figure.

 

[KitCat]

@Michelle

excellent post thank you. Social security backpay can be really significant for some people as well ($50k+) I know one guy who got 200k.

It's ironic but if you get approved for disability, this could cause your disability discharge to become really expensive.

So, I would also tell people to be really careful if they are applying for both... or to wait.

thanks so much for mentioning about the probationary period, I did not realize how that works... someone can pay all the taxes and then still have to pay the loan back? These disability discharges can definitely mess people up.

I'm thrilled it worked for you.

 

[powertool4]

@powertool4 As I mentioned upthread, the process was very simple for me. My doctor filled out the form (you can download it here). Actually my PCP/GP at the time was a nurse practitioner so she needed an MD co-sign. But she only put down CFS as my diagnosis (I have other conditions too like EDS but she didn't include them). There were a couple of questions about functional capacity (in my case, I can walk about 500 steps a day and leave home only a few times a year). And, that was about it. Took about 10 minutes for the two of us to fill out. I mailed it in and a few months later was notified that I was eligible (i.e. that my loans were being discharged). If you've been on disability for 5 years or more, you're quite likely to qualify. If it's been less than that, it will probably be more difficult.

Also as mentioned upthread, if you own a home or other assets, loan forgiveness (or "discharge" is the other term they use @msf) may not be a good option as the amount of your loan that is forgiven is considered income for tax purposes. In that way, I'm "lucky" that I got sick before I'd finished grad school and hadn't been able to do fully adult things like buy a house. Since I have no assets, I'm considered insolvent for tax purposes and owe nothing. If you do own a home, you will be required to pay taxes the year you are told you are "eligible" (i.e. your loan has been discharged).

Also note that once you are notified that you're eligible, you're put on a 3 year probationary period where they check to see if you're earning income equivalent to the Federal Poverty Level for two (regardless of whether you're married with ten kids or single). If you do during that 3 year period, you will automatically be required to resume loan repayment. The silly thing is, you will already have, say, paid taxes on your forgiven loan. Go figure.

Thank you both for the help. I'm not on SSI and was denied last time I applied. I never bothered appealing because I ended up making a recovery but my relapse this time around is bad. I'll have to look into this.