- The loan servicer reviews your application. Applications that are approved get sent to the Department of Education for final approval. If the Department of Education approves the application, you get a notice stating that your loan is discharged.
- If you are approved, the discharge is effective starting from the date the doctor signed the form or starting from the date the Department of Education got the Social Security Administration’s notice of award. Any payments you made after those dates must be returned to you.
- After giving a final discharge, the Department of Education continues to evaluate you for 3 years. They can reinstate the loan in certain circumstances. The 3-year period begins on the date the discharge was granted.
Your loan will not be reinstated as long as you do not take out any new federal student loans during the 3 years. You also can’t have earnings from work that are more than 100% of the federal poverty guidelines for a family of 2, even if you have more than 2 people in your family.
- This means that you are allowed to try to work, but if you earn more than this amount, the Department of Education assumes you are not really permanently disabled.
- You will be reinstated if you applied using a Social Security Award notice and you get another notice from Social Security Administration saying you are no longer disabled or that your disability review will no longer be the 5-7 year period.
- This reinstatement period does not apply to veterans applying through the separate veteran’s process.
ALERT: The amounts discharged due to disability may be taxable income on your federal taxes if they were discharged before January 1, 2018. You have to report to the I.R.S. the discharge of any debt greater than $600 as income in the year that the loan was discharged if your loan discharge is based on the VA’s documentation. If your loan was discharged based on SSA’s documentation or a physician’s certificate, your loan is discharged at the end of the 3-year monitoring period. But you may not have to pay taxes. It is a good idea to consult a tax professional for more information.
The amounts discharged due to disability are not taxable income on your federal taxes if they were discharged on January 1, 2018 or later (up until December 31, 2025).