Source:  Final Rules published by the Department of Education (ED) on November 1, 2007 (Federal Register Vol. 72, No. 211) amending 34 CFR §682.402(c)

Effective Date:  Total and permanent disability discharge requests received on or after July 1, 2008

The following outlines the revised requirements for discharging a loan due to a borrower’s total and permanent disability.

Application for Discharge
Upon notification from the borrower or his/her representative that the borrower is totally and permanently disabled, the lender must request a total and permanent disability application be completed and submitted to the lender. The borrower must submit the application within 90 days of the date the physician certifies the borrower’s application.

Discharge Eligibility
The date of the total and permanent disability is defined as the date the physician certifies the borrower’s eligibility on the discharge application form. If the discharge request is approved by the lender and the guaranty agency, the loan is assigned to ED. The three-year conditional discharge period begins on the date the physician certified the application.

To remain eligible for the discharge from the date the physician certified the borrower’s total and permanent disability on the application through the end of the three-year conditional discharge period:

• The borrower’s annual earnings from employment cannot exceed 100% of the poverty line for a family of two.
• The borrower cannot receive a new Perkins, FFELP, or Direct loan. However, the borrower may obtain a FFELP or Direct Consolidation loan so long as the consolidation does not include any loans that are in a conditional discharge status.
• The borrower must return within 120 days of the disbursement date the full amount of any Perkins, FFELP, or Direct loan disbursement received after the date the physician completed and certified the application.

Lender Responsibilities
The lender must continue collection activity until it receives a certified total and permanent disability application or a letter from a physician requesting the need for more time to determine if the borrower is totally and permanently disabled. After receiving the physician’s certification or letter, the lender must suspend collection activity against the borrower and any endorser.

Upon receipt of a certified application, the lender must make a determination of the borrower’s eligibility and submit a total and permanent disability claim to the guarantor.

If the lender determines that the borrower fails to meet the criteria for total and permanent disability, or if the lender does not receive the physician’s certification of total and permanent disability within 60 days of the receipt of the physician’s letter requesting additional time, the lender must resume collection. A forbearance may be granted from the date collection activity was suspended. The lender may capitalize any interest that accrues during the forbearance period and not paid.

If the guaranty agency pays the disability claim, the lender must notify the borrower that:

• The loan will be assigned to ED for determination of eligibility for a total and permanent disability discharge.
• No payments are due on the loan.
• To maintain eligibility from the date the physician completed and certified the application to the date of final discharge:
• Annual earnings from employment cannot exceed 100% of the poverty line for a family of two, as determined by the Community Services Block Grant.
• The borrower cannot receive a new Perkins, FFELP, or Direct loan; however, the borrower may obtain a FFELP or Direct Consolidation loan so long as the consolidation does not include any loans that are in a conditional discharge status.
• The borrower must return within 120 days of the disbursement date the full amount of any Perkins, FFELP, or Direct loan disbursement received after the date the physician completed and certified the application.

Any payments received from or on behalf of the borrower by the lender after the claim payment is received must be forwarded to the guarantor.

Upon receiving a denied claim, the lender must notify the borrower of the denial, the reason for the denial, and that collection of the loan will resume. A forbearance may be granted from the date collection activity was suspended until the next payment due date. The lender may capitalize any interest that accrues during the forbearance period and not paid.

If the guaranty agency does not pay the claim, the agency must return the claim to the lender with an explanation of denial.

Department of Education Approval
If ED initially determines the borrower is totally and permanently disabled, a three-year prospective conditional discharge period begins on the date the physician certified the application. ED reserves the right to require the borrower to submit additional medical evidence at any time during the application process or at the end of the conditional period.

Department of Education Denial
If the borrower does not meet the criteria for total and permanent disability discharge, ED will notify the borrower that the loan is due and payable to ED under the terms of the promissory note.

Refund of Payments
Upon final determination of the borrower’s total and permanent disability at the end of the three-year conditional period, ED will return any payments made on the loan after the date the physician completed and certified the borrower’s discharge application. The payments will be returned to the person who made the payments.

• The disability date was the date the physician determined the borrower became totally and permanently disabled, not the date the physician completes and certifies the disability application.
• No timeframe existed for the borrower to submit a completed application for total and permanent disability to the lender.
• Payments made by the borrower after the date the physician certified as the disability date were refunded.
• Part or all of the three-year conditional discharge period could be retroactive.
• No requirement existed for the borrower to return within 120 days of disbursement the full amount of a Perkins, FFELP, or Direct loan disbursement received after the date the physician certifies the disability on the application.