We are pleased to announce that, starting in September 2021, we will begin automatically discharging the Title IV loans and Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligations of borrowers and TEACH Grant recipients who are identified as eligible for Total and Permanent Disability (TPD) discharges based on information obtained through the quarterly data match that we conduct with the Social Security Administration (SSA).
Under the William D. Ford Federal Direct Loan (Direct Loan), Federal Family Education Loan (FFEL), Federal Perkins Loan (Perkins Loan), and TEACH Grant program regulations, borrowers and TEACH Grant recipients may qualify for a TPD discharge of their federal student loans and/or TEACH Grant service obligations based on:
A certification from a physician that they are totally and permanently disabled;
An SSA notice of award for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits indicating that the borrower's next scheduled disability review will be within five to seven years (i.e., a “medical improvement not expected” status); or
A determination by the U.S. Department of Veterans Affairs (VA) that they are unemployable due to a service-connected disability (see DCL GEN-09-07 for more information about the specific types of qualifying VA determinations).
Since 2016, we have had a data matching agreement with the SSA to identify borrowers and TEACH Grant recipients who qualify for TPD discharges, and since 2018, we have had a similar matching agreement with VA (see the Electronic Announcements posted on April 12, 2016 and April 17, 2018, for more information). When these matching agreements were first implemented, eligible borrowers and TEACH Grant recipients were notified that to receive a TPD discharge, they needed to sign and submit a TPD discharge application to Nelnet, the U.S. Department of Education's (the Department's) TPD servicer, without having to provide any additional documentation.
In 2019, the TPD discharge regulations were modified to allow us to automatically discharge the loans and TEACH Grant service obligations of individuals identified as eligible for TPD discharges through the VA match, without requiring them to submit a discharge application. Under this automatic discharge process, eligible borrowers and TEACH Grant recipients receive letters notifying them that they qualify for TPD discharge and that their loans and/or TEACH Grant service obligations will be automatically discharged unless they notify us within 60 days of the date of the letter that they do not want the discharge. However, the 2019 regulatory change did not apply to borrowers and grant recipients identified through the SSA match.
Automatic TPD Discharge Based on SSA Data Match
A regulatory change announced today will now allow us to automatically discharge the loans and TEACH Grant service obligations of individuals identified as eligible for discharge through the SSA data match without requiring the submission of an application. We will begin the new automatic discharge process starting with our next scheduled quarterly match with the SSA in September 2021.
Going forward, borrowers and TEACH Grant recipients identified as eligible for TPD discharge through the SSA data match will receive notices informing them of their eligibility and, consistent with the existing automatic discharge process based on the VA match, explaining that we will automatically discharge their loans and/or TEACH Grant service obligations unless they opt out of receiving the discharge within 60 days of the date of the eligibility notification.
We will also apply the change to approximately 323,000 borrowers owing more than $5.8 billion who were notified of their eligibility for TPD discharge through prior SSA matches, but who did not submit discharge applications as was previously required under the regulations. Note: This figure excludes TEACH Grant recipients whose grants have not converted to loans.
TPD Post-Discharge Monitoring Period
As a reminder, under current regulations, borrowers and TEACH Grant recipients who qualify for TPD discharge based on SSA disability determinations are subject to a three-year post-discharge monitoring period during which they must annually provide documentation of earnings from employment. If a borrower or grant recipient fails to provide this documentation, their discharged loans or service obligations are reinstated. Due to COVID-19, the requirement to provide documentation of earned income during the post-discharge monitoring process has been suspended through the end of the pandemic. As announced by the Department in its press release, the Department will indefinitely stop sending automatic requests for earnings information for these borrowers even after the national emergency ends. This continues a practice that the Department announced in March 2021 would be in place for the duration of the national emergency. The Department will then propose eliminating the monitoring period entirely in the upcoming negotiated rulemaking that will begin in October.
Federal Tax Consequences of TPD Discharges
As an additional reminder, the Tax Cuts and Jobs Act (Pub. L. No. 115-97) eliminated the federal tax consequences of TPD discharges that are granted during the period from January 1, 2018 through December 31, 2025. The American Recue Plan Act (Pub. L. No. 117-02) extended this federal tax treatment to all types of federal student loan discharges from January 1, 2021 through December 31, 2025. However, loan amounts discharged due to TPD may be considered taxable income under some state laws. Borrowers should consult a tax professional about any potential state tax consequences of receiving a TPD discharge so they can make an informed decision about whether to opt out of the discharge.
Other Operational Impacts
At this time, we are not making any changes to the loan holder notification file process, as described in this April 17, 2018 Electronic Announcement or the TPD assignment process described in the Electronic Announcements posted on March 8, 2016 and October 31, 2016.
Thank you for your continued support of our administration of the Title IV, student financial assistance programs.