Once you sign on with a federally-guaranteed student loan, getting out of it is tough. When the U.S. government guaranteed your student loan debt, it put other hard-working taxpayers’ money on the line for you. That makes these loans fundamentally different from private loans that don’t come with guarantees: While a private lender went ahead and issued the loan voluntarily, knowing the risks, the same cannot be true of any individual taxpayer. Any money paid by the Treasury to make good on defaulted student loans was taken involuntarily from the taxpayer.
This is why the normal bankruptcy process that discharges debts or reorganizes debt payments to a private creditor does not normally apply to federally-guaranteed student loans – or VA home loan debt, for that matter, for the same reason. The U.S. government wants its money, and it is willing to be extremely patient and persistent in getting its money back.
That said, all of us know that occasionally, things happen. Even with the best of intentions, sometimes a young physician gets disabled and it is simply not reasonable to expect him or her to be able to pay back the substantial medical school debt – on top of medical bills he or she may have personally incurred due to the onset of the disabling illness or accident.
Something you should know…
While it is possible for the severely and permanently disabled to get a break on a federal student loan, this process is not a substitute for a disability strategy that includes disability income insurance as a prime component. The federal system is designed to help people avoid sinking below a very bare subsistence income. As a doctor in your 20s-50s, you may well have millions of dollars of future income at stake. It is your responsibility to take steps to protect as much of this income as you choose to, through the use of disability insurance, life and long term care coverage.
So what does it take to get the Treasury to cut some slack?
To discharge or forgive a federally-guaranteed loan, the minimum the Department of Education will be looking for is any one of these criteria:
- A disability that can be expected to last for a continuous period of five years,
- A disability that has lasted continuously for at least five years into the present.
- A disability that can be expected to result in death.
To qualify, the disability must additionally prevent you from engaging in any gainful employment. This is a key provision for a doctor, for it means as long as you can make a living behind the counter for the 3AM shift at a gas station on the bypass outside of town. This might work for someone who is accustomed to making a living as a gas station attendant, but it’s probably not something you want to be going through having sacrificed so much for so long to become a doctor.
These criteria apply to FFEL, Direct, Perkins, TEACH Grants and Plus loans (though for Plus loans the disabled individual must be the parent/ guardian, rather than the student).
Getting a Doctors’ Statement
Your doctors’ statement is the most critical part of the discharge application process. In it your doctor must address the specific unemployability criteria, verify that your disability prevents you from engaging in meaningful employment, and discuss exactly why this is the case.
If you are receiving or approved for SSI or SSDI payments, this could be helpful – but again, SSI and/or SSDI are no substitute for a proper disability income insurance strategy. These federal programs are designed to keep you from becoming destitute. SSI and SSDI are not designed to help you protect a doctors’ income and your family’s lifestyle against the risk of a disability.
To submit an application, go to this website:
https://secure.disabilitydischarge.com/registration.
Fill out sections 1 and 3. Your doctor must fill out Section 4. Then you sign and date the bottom of Section 3.
Important: From the date your doctor signs, you have 90 days to turn it in.
Send your completed application to:
U.S. Dept. of EducationTPD ServicingP.O. Box 87130Lincoln NE 68501-7130