Ask The Money Coach

If you were disabled in the past, a letter from a doctor that testified to your condition was needed to qualify to have your student loan discharged.

Back in 2002, however, the Department of Education tightened the guidelines and the rules concerning those loans that were being discharged due to permanent and total disability. Essentially, the department said you can be deemed totally and permanently disabled only if:

• You can’t earn a living due to an injury or illness that is likely to persist indefinitely or that is likely to result in death
• Your doctor certifies that you are 100 percent disabled based on the definition above
• You go through a conditional discharge period for three years, affirming over and over again that you really are disabled

What all this means is that now, not only do you have to have the support of your doctor attesting to your total and permanent disability, you must also agree to be subjected to a three-year period of close monitoring and scrutiny by the Department of Education.

During this conditional discharge period, the Department will check with the IRS and see whether or not you earn income. They’ll have you attest, year after year for those three years, that you continue to meet the definition of being disabled. During this conditional period, you don’t have to pay back the principal or interest on your student loans.

If you continue to be deemed as totally and permanently disabled, at the end of the three-year conditional period, your student loans will be cancelled. If, for some reason, you don’t continue to meet the cancellation requirements, you must start repaying those college debts.

The department’s definition of disability, by the way, is far stricter than even the Social Security Administration. The Department of Education says you’re truly disabled only if you can’t work or earn money because of a major injury or illness that is expected to continue indefinitely or that is likely to result in death. Again, your doctor has to also sign forms stating this as well.

Now I know some of you will say, “Good grief. I might have suffered an injury or illness that’s temporary in nature, but I certainly don’t think it’ll last indefinitely and I sure as heck hope it won’t kill me!” Well, I hope that you’re right. But here’s where the rules get a little murkier. The Department of Education won’t ban you from working altogether. In the fine print of the rules concerning disability discharges, you’ll find that you are allowed to work—and remain eligible for that disability discharge—as long as you don’t earn more than the poverty level, which is currently about $13,100 a year.

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