Veterans: Take Advantage Of Student Loan Forgiveness But Dont Let It Damage Your Credit
For some veterans, their time in uniform caused a severe service-connected disability. This dramatically impacts their life after transition out of the military.
For 100-percent service-disabled veterans who have student debt, the Department of Education offers a valuable benefit to help them avoid financial distress the chance to have their loans discharged . Under federal law, veterans can seek federal student loan forgiveness if they receive a 100 percent disability rating by the Department of Veterans Affairs . Private student lenders are not required to offer this benefit, but some do on a case-by-case basis, so be sure to ask.
We encourage all consumers to check their credit report regularly, but we want to especially encourage veterans who use this benefit to be sure that their student loan servicer is providing correct information about their loan discharge to credit bureaus .
For example, one service-disabled veteran submitted a complaint to us describing how his credit score fell by 150 points as a result of this type of error. His score went from a nearly perfect super prime credit score to a much lower score simply because he received loan forgiveness.
Is It Worth It To Use The Va Edrp And Pslf Together
Health care VA jobs do qualify as public service for PSLF. In most cases, it can make sense to pursue both the VA EDRP and PSLF at the same time. But there are a couple of things to keep in mind.
First, note that the VA EDRP is a reimbursement program. You can only receive reimbursements for student loan payments that you make. Second, its important to remember that medical professionals can begin making qualifying payments toward PSLF as soon as they begin residency.
Heres why those two facts matter: If you begin PSLF as soon as you start residency, you might have less than five years remaining by the time you start your VA job. In that case, youre welcome to apply for VA EDRP reimbursement for your IDR payments.
But you probably wouldnt want to increase your monthly payment amount toward your federal student loans. Why? Because if you pay more than your IDR plan requires, you could risk having your loan placed in paid ahead status. And that can present problems for PSLF, even though the Biden administration is working on fixes to the paid ahead problem.
Veterans Total And Permanent Disability Discharge
A TPD discharge indicates that you have a service-related disability documented by the Department of Veterans Affairs and you have been deemed permanently disabled. This allows your Direct loans, FFEL loans, and Perkins loans to be discharged in full.
Private student loans do not accept applications for TPD discharge.
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Qualifications for a TPD Discharge
In order to qualify for a TPD discharge, you must submit an application along with documentation proving that you are considered totally and permanently disabled.
All documents will be submitted to Nelnet, the company that processes TPD discharge applications.
Documentation Needed for a TPD Discharge
The VA can provide documentation that shows you have a service-connected disability that is 100% disabling, or that you are totally disabled based on an individual unemployability rating.
How Do I Apply for a TPD Discharge?
You can visit the TPD Discharge website at disabilitydischarge.com and select Application Process. Once you complete the application, you can send it along with the required documentation, to Nelnet.
You can also request the application by calling or emailing Nelnet.
Phone: 1-888-303-7818 Monday-Friday 7 am 2 am EST, Saturday 8 am 7 pm EST
Email: disabilityinformation@nelnet.net
What Happens if My TPD Discharge Request is Approved?
What Happens if My TPD Discharge Request is Denied?
Nelnet will let you know when your next payment is due on your loans.
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Public Service Loan Forgiveness Program
Veterans qualify for the Public Service Loan Forgiveness program.
The goal of this program is to forgive student debt for borrowers who want to join government-related fields. Since the armed forces is under the federal state, veterans qualify for this program.
The Department of Education sets the terms for the PSLF. These apply to everyone.
First, you should be able to make student loan payments on time for 120 months . Typically, borrowers under this program are under an income-based repayment plan. This means you reduce the total amount of the loan you pay off before receiving forgiveness.
The PSLF and other forgiveness programs for veterans only forgive federal loans. Also, deferment isnt an option.
For private student loans, youll have to seek refinancing options.
What Is Student Loan Forgiveness
Student loan forgiveness is a program that allows borrowers to have their debt forgiven after they meet certain conditions. Student loan forgiveness programs are available through federal and private institutions.
The most common student loan forgiveness program is the Federal Student Loan Forgiveness Program . The FSLP offers borrowers who have qualifying federal loans some relief from their debt. Eligibility requirements for the FSLP vary depending on the loan type, but typically, you must have at least partial financial hardship and be enrolled in an eligible repayment plan.
The Private Student Loan Forgiveness Program is another common student loan forgiveness program. The PSLFP offers borrowers relief from their private student loans, which are typically owned by banks, credit unions, or other lenders. To qualify for forgiveness, you must have served in a military service during a time of conflict and meet other eligibility requirements.
There are also other types of student loan forgiveness programs available, but these are the most commonly used. If you are interested in pursuing student loan forgiveness, it is important to research each option carefully to make sure it is right for you.
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What Is Student Loan Forgiveness For Veterans
Veterans who are eligible for student loan forgiveness may be able to have their loans forgiven if they meet certain requirements. Student loan forgiveness is a way to reduce or eliminate the amount you owe on your student loans, which can help you save money over time.
To be eligible for student loan forgiveness, you must meet certain requirements, including being a veteran and meeting certain income and education requirements. You may also need to file a claim with the Department of Education. If your application is approved, the Department will forgive or reduce the amount of your loan, based on your financial situation.
There are a few things you should know before filing a claim for student loan forgiveness. First, make sure you have all the information necessary to file a claim. Second, be prepared to provide documentation to support your application. Finally, keep in mind that the Department of Education may not be able to completely forgive your loans. However, if you meet all the requirements, student loan forgiveness may be an option for you.
What Is A Veteran
First, lets clarify some terms. Most people think veterans are injured soldiers who have served the country in wars. This is part of the image of a veteran, but it isnt the only one.
A veteran is anyone who has served in any branch of the military who isnt discharged dishonorably. This refers to anyone in the Army, Navy, Air Force, and other related branches.
You dont have to be seriously injured to qualify as a veteran. As long as you have served the country in the military without dishonor, you are a veteran.
Are you a veteran? Good news. You qualify for student loan forgiveness.
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Important Things To Know About The Loan Discharge Process
There are a few important things to know about the federal student loan debt discharge program. For example, there is a three-year post-discharge monitoring period.
You will be required to repay your discharged loan if any of the following events occur:
- Your annual earnings from employment exceed poverty guidelines
- You take out a new federal student loan under a direct loan program or TEACH grant
- You receive another disbursement from the direct loan program or TEACH grant, and you havent returned the disbursement in 120 days
- You receive a notice from SSA stating you are no longer disabled
Another important thing to know is that loan discharges can receive different tax treatment:
- received before Jan 1, 2018, the discharge may be considered income for federal tax purposes
- received from Jan 1, 2018, to Dec 31, 2025, the discharge wont be considered income for federal tax purposes
You should contact a tax professional if you are worried about the tax implications of forgiving your student loans. There are important things to know about the loan discharge process, so be sure to read all the information carefully before you apply.
You can also get help from a veterans representative if you need assistance completing your application.
Disabled Veteran Student Loan Forgiveness: Top 3 Reasons Why Veterans Should Apply
I hope you enjoy reading this blog post.
If you want to learn how to implement these strategies to get the VA benefits you deserve, to speak with a VA claim expert for free.
The new Disabled Veteran Student Loan Forgiveness Program discharges the Federal Student Loan Debt of veterans who are Totally and Permanently Disabled with a 100% P& T VA RatingOR have a 100 percent Total Disability Individual Unemployability status.
Its officially called the Total and Permanent Disability discharge program, and has been a huge success to date.
And guess what else veterans?
A little known fact is that if youre a veteran with a 100 percent scheduler VA disability rating , youre also eligible for Disabled Veteran Student Loan Forgiveness!
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Why Is The Department Of Education Dragging Its Feet On Debt Relief For Disabled Veterans
Hundreds of thousands of student borrowers, including 42,000 veterans, qualify to have their student loans cancelled because of a total and permanent disability . Yet few eligible borrowers take advantage of this benefit, in part because they have to actually ask for it. The Department of Education knows who these disabled borrowers are and could automatically discharge their loans today, but it has refused to do so even in the face of years of Congressional pressure. Instead, more and more disabled borrowers go into default or see their disability benefits offset to pay back their loans. This is bad enough for most disabled borrowers, but is particularly cruel to disabled veterans, whose inability to afford their student loans is precisely because of their service to the country. ED claims it cant automatically discharge this debt for tax reasons, but that is simply not the case.
Background
Without that exception to the tax treatment of cancelled debt, one can understand EDs reluctance to push TPD discharge. For example, in 2017, Army veteran Will Milzarski, who suffered traumatic brain injury, PTSD, and hearing loss during combat in Afghanistan, was hit with a $70,000 tax bill after his $223,000 in student loans was cancelled under TPD discharge. Thats painful for a borrower .
State Tax is Highly Unlikely to Apply
But it is not clear why ED would be truly concerned, since it has been down this road before.
No State Tax Issues in the Corinthian Colleges Discharge
What Disabilities Qualify For Student Loan Forgiveness
#Forgiveness
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Federal student loan borrowers qualify for student loan forgiveness if they suffer from any mental or physical disability that is severe, permanent and prevents them from engaging in substantial gainful activity. Proof of the disability can come from a doctor, the SSA, or VA.
Borrowers with disabilities can have their student loan debt discharged if a permanent physical or mental impairment prevents them from working. The Department of Education accepts proof of your disability from a doctor, the Social Security Administration, or the Department of Veterans Affairs. Some private lenders may rely on the same information.
Ahead, learn what disabilities qualify for student loan forgiveness and how to apply for a total and permanent disability discharge.
Latest on student loans
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Covid-19 forbearance extended: The newest student loan payment pause moved the repayment start date to May 2, 2022.
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New deadline: The latest coronavirus pandemic forbearance moved the student loan recertification deadline to August of 2022.
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How Disabled Borrowers Prove Eligibility
There are three options to prove your disability and start the discharge process:
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Physicians certification: Your primary care physician or specialist can certify they believe you can no longer work due to your medical issues. To apply, you will need to download a PDF copy of the Total and Permanent Disability Discharge Application form and get your doctors certification.
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Social Security Notice of Award: You qualify if two things are true: First, you receive Social Security Disability Insurance or Supplemental Security Income benefits. Second, your notice of award letter from the Social Security Administration must say that your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination.
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Veteran Affairs Determination Letter: If you are a veteran with a service-connected condition that has left you unemployable, you can qualify for this type of loan discharge without providing documentation from your doctor. As a veteran, you will qualify if you have a letter from the VA stating you either have a service-connected disability that is 100% disabling or if you are totally disabled based on an individual unemployability rating.
Learn More: $10,000 Student Loan Forgiveness
List Of Top 3 Veteran Benefits Of Disabled Veteran Student Loan Forgiveness
Top 3 Disabled Veteran Student Loan Forgiveness Benefits
- #1 Benefit of the Federal Student Loan Forgiveness for Disabled Veterans: All veteran student loan debt wiped clean, potentially saving you hundreds of thousands of dollars overnight!
- #2 Benefit of the Disabled Veterans Student Loan Debt Discharge Program: Previous loan payments received on or after the effective date of the VAs disability determination may be returned to the veteran.
- #3 Benefit of Veteran Student Loan Forgiveness: No federal tax on TPD discharges of a loan approved from Jan 1, 2018 through Dec 31, 2025.
Please note that loan amounts discharged due to TPD may still be considered as income for state tax purposes.
Ifyou receive a TPD discharge of a federal student loan, you may want to consultwith your state tax office or a tax professional before you file your state taxreturn.
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Preparing Financially As A Veteran
If youve recently left the military, you can take several steps to get your finances in the kind of shape that would impress a five-star general. Among them are:
- Set up a budget. Not only should you lay out a spending plan, but you should strive to stick to it. A household budget will help you navigate post-service changes in your financial situation.
- Slash high-interest debt. High-interest debt can eat away at your wallet. Reducing this debt puts more money in your pocket for necessities like housing and groceries.
- Explore health insurance. Once youre out of the military, you may no longer enjoy access to government-sponsored health insurance, but you can take advantage of insurance deals for veterans and benefits from the U.S. Department of Veterans Affairs . However, those benefits likely wont extend to your family. Therefore, you might need to look into private health insurance.
- Create an emergency fund. In a 2021 survey by Navy Federal Credit Union, 27 percent of military families reported establishing or adding to an emergency fund as a result of the pandemic. Pandemic or not, setting aside money for emergencies is wise for veterans, too.
Army College Loan Repayment
Highly-qualified candidates entering the Army may be eligible for the Army College Loan Repayment Program. Under this program, the Army will repay up to 33.3% of the outstanding principal balance or $1,500 whichever is greater each year for up to three years. The award maximum is $65,000.
For more information, visit the Army College Loan Repayment Program website.
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Program Payments Are Tax
One of the great things about this VA student loan forgiveness program is that it wont create a taxable event with the IRS. Thats a huge plus. With many programs, including income-driven repayment forgiveness, the remaining balance thats forgiven is considered taxable income.
To demonstrate why the EDRPs tax-exempt status is such a big deal, imagine that you received the full $200,000 limit from this VA student loan repayment program. That would work out to an extra $40,000 of taxable income each year. If you were in the 25% tax bracket, that could add an extra $10,000 to your tax bill each of the five years.
One thing to keep in mind is that some hospitals might offer their own student loan repayment programs that are taxable. If youre accepted into the EDRP, you should probably avoid these employer-based programs.
Heres why:
Lets say you have $120,000 in student loans, and your employer offers $20,000 of student loan repayment per year. By combining your employers program with the EDRP, you could pay off your loans in two years instead of three. But youd also generate $40,000 of taxable income. Why use taxable money today when you could get your hands on tax-free money tomorrow?
But what if you could participate in the VA EDRP and PSLF at the same time? Lets take a look at when and if that would be a smart student loan repayment strategy.
If Something Doesnt Seem Right Contact The Credit Reporting Company And Dispute The Error
Understanding how discharged loans show up on your credit report can be complicated. If you file a dispute and it still doesnt get corrected, submit a complaint with us and well work to get you a response from the company. You can call us at 411-2372 or submit a complaint online.
Last year, we put companies on notice that they must investigate disputed information in a credit report, and that we will take appropriate action, as needed. We will also continue to closely monitor complaints from veterans and other disabled student loan borrowers to make sure student loan servicers are furnishing correct information to the credit bureaus about disability discharges. All financial services providers that serve veterans should redouble their efforts to ensure that veterans are not penalized for receiving the benefits they earned and deserve for their sacrifices.
Holly Petraeus is Assistant Director of the Office of Servicemember Affairs and Rohit Chopra is the CFPBs Student Loan Ombudsman.
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