Student Loan Payments in the Event of a Disability: What You Need to Know

Veterinary education costs have risen dramatically. The average cost to obtain your DVM typically exceeds $200,000 according to the VIN Foundation. It’s not surprising that many veterinarians take out student loans to help cover the costs. The 2021 AVMA Economic State of the Profession Report says the average debt of veterinary graduates is $157,146. That equates to a $1,808 monthly loan payment, assuming a 6.8% interest rate and a 10-year repayment term.

If an injury or illness kept you from working, how would you make that monthly payment? Considering a 20-year-old worker has a one-in-four chance of experiencing a disability before reaching retirement age, it’s important to make a plan. Keep reading to discover the options available to you if you suffer a disabling injury or illness.

Federal Student Loan Forgiveness Due to a Disability

For federal student loans, you may be eligible to have your loans cancelled through a TOTAL PERMANENT DISABILITY (TPD) discharge. The following types of federal student aid are eligible for a TPD discharge:

• Loans made under the William D. Ford Federal Direct Loan Program
• Loans made under the Federal Family Education Loan (FFEL) Program
• Loans made under the Federal Perkins Loan Program
• A Teacher Education Assistance for College and Higher Education (TEACH) Grant, which requires you to complete a service obligation

To qualify for a TPD discharge, you are required to demonstrate that you are totally and permanently disabled. You can demonstrate your disability in one of three ways:

• Submit documentation from the Department of Veterans Affairs (VA) showing you are unemployable due to a service-connected disability
• Submit a Social Security Administration (SSA) notice showing you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) and that your next scheduled disability review will be within five to seven years
• Submit certification from a physician proving you are totally and permanently disabled with a condition that has lasted for at least 60 months and will continue to last for at least 60 months or is expected to result in death

Private Student Loan Forgiveness Due to a Disability

If your student loan is through a bank, credit union, or another private lender, your options for loan forgiveness are likely more limited. However, some private student loans provide a disability discharge similar to the TPD discharge for federal student loans.

The nation’s largest private education lender, Sallie Mae, for instance, will waive your current loan balance if you become totally and permanently disabled. Similar to the federal TPD discharge process, you will have to submit proof of your disability from a physician. Wells Fargo and other private lenders offer similar loan forgiveness options for total and permanent disabilities.

With private student loans, it’s critical you look at your specific loan’s terms, conditions, benefits, rates, fees, and penalties. If your specific lender doesn’t appear to offer loan forgiveness or if you’re unsure, give them a call. They may offer other options to assist disabled borrowers.

Three Factors to Consider When Applying for Student Loan Forgiveness

If you’re unable to work and make payments on your student loans, loan forgiveness can be a lifesaver. However, there are some important considerations to keep in mind when applying for a TPD discharge.

1. Your TPD discharge application could be delayed or denied.
Based on an analysis of government data, less than 0.5% of borrowers qualify for a disability discharge each year, even though about 5% of borrowers have a severe disability.

What’s more, according to an NPR report from 2019, hundreds of thousands of borrowers have not received the relief they’re entitled to due to basic paperwork issues or lack of awareness of the options available.

2. Your loans could be reinstated.
If you’re approved for a student loan discharge via TPD, you are subject to a three-year monitoring period. During this period, you must meet certain standards. If you earn an income above the federal poverty guideline for a family of two, fail to provide the U.S. Department of Education with documentation of your annual earnings once a year, or return to school and borrow a new federal student loan, your obligation to repay your student loans will be reinstated.

3. You may have to pay more in taxes.
Generally, any debt forgiven or discharged in the United States is considered ordinary income for tax purposes. So if you have $50,000 in student loan debt discharged, you’d have to report that $50,000 as income. This rule can have detrimental tax consequences to borrowers—your tax bill could rise by $10,000 or more in this scenario!

For borrowers who receive(d) forgiveness between 2018 and 2025, there is some good news. The Tax Cuts and Jobs Act of 2017 made death and disability discharge tax-free for both federal and private loans. However, the Act could expire in 2026 if Congress doesn’t take action, so the potential tax implications are still important to consider.

How Student Loan Insurance Can Help

With the strict eligibility, paperwork, and reporting requirements plus the potential tax implications, you may not want to rely on the student loan forgiveness provisions offered by your federal or private lenders.

AVMA LIFE Trust Student Loan Disability Insurance can help cover your student loans if you suffer a covered total disability. Eligible members can apply for up to $2,000 in monthly benefits and can choose between two benefit period options. With Plan 1, you can receive benefits for up to five years, and with Plan 2, you can receive benefits for up to ten years.

With this coverage in place, you won’t have to worry whether your private student loans offer loan forgiveness or if your TPD discharge application will be delayed or approved; it provides an added layer of protection.

Student Loan Disability Insurance can also help provide financial protection if you have not had your disability long enough to qualify for a TPD discharge. Since you must have the disability for at least five years before you can apply for a TPD discharge, benefits received from this coverage can offer financial relief until you are eligible.

Interested in learning more? Visit our product page, contact your agent, or call 800.621.6360 to speak with a customer service representative.

AVMA LIFE Trust’s Student Loan Disability Insurance (Supplemental Disability) is underwritten by New York Life Insurance Company, NY, NY 10010 on group policy form GMR.

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