Publication Date: May 15, 2009
Subject: Procedures for discharging Title IV loans based on a determination by the Department of Veterans Affairs that a veteran is unemployable due to a service-connected condition or disability
Summary: This letter explains the change made to §437(a) of the Higher Education Act by the Higher Education Opportunity Act that establishes a separate standard for determining whether certain veterans are totally and permanently disabled for Title IV loan discharge purposes. This letter provides implementation guidance to FFEL lenders, guaranty agencies, and Perkins school lenders on the procedures for processing total and permanent disability discharge requests for borrowers who are covered by the new statutory provisions.
Note: The phone, fax, and mailing address information for the Department's Veterans Disability Discharge Unit provided in Section VI Mailing Address has changed since publication of this Dear Colleague Letter. The updated information is as follows:
Nelnet Total and Permanent Disability Servicer
Note: The physical street address for mailing assignments and referrals is in Aurora, CO, a suburb of Denver.
This Dear Colleague Letter provides an overview of the procedures for processing total and permanent disability loan discharges for Federal Family Education Loan (FFEL) Program and Perkins Loan borrowers who have been determined by the Department of Veterans Affairs (VA) to be unemployable due to a service-connected condition. The Department of Education (the Department) will follow the same procedures for Direct Loan borrowers and other borrowers whose loans are held by the Department, and for Teacher Education Assistance for College and Higher Education (TEACH) Grant recipients who have applied for total and permanent disability discharge of their TEACH Grant service obligations.
I. Overview of Statutory Change
Section 437(b) of the Higher Education Opportunity Act (HEOA) amended §437(a) of the Higher Education Act of 1965, as amended (HEA) to provide that a FFEL loan may be discharged if the borrower-
. . .has been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition and . . . provides documentation of such determination to the Secretary of Education, [such borrower] shall be considered permanently and totally disabled for the purpose of discharging such borrower's loans under this subsection, and such borrower shall not be required to present additional documentation for purposes of this subsection.
This same standard applies to the Direct Loan Program in accordance with §455(a)(1)
of the HEA. In the Perkins Loan Program, §464(b)(1)(A)(iv) of the HEOA
amended §464(c)(1)(F) of the HEA to provide that a borrower's liability
to repay a Perkins Loan Program loan shall be cancelled "if the borrower
is determined by the Secretary of Veterans Affairs to be unemployable due to
a service-connected disability." These provisions became effective August
14, 2008 for the FFEL and Direct Loan programs, and July 1, 2008 for the Perkins
II. Department of Veterans Affairs Determinations That Qualify a Borrower
for a Disability Discharge Under the New Statutory Standard
To qualify for a total and permanent disability loan discharge under the statutory standard described above, a veteran must have received a determination from the VA that he or she is unemployable due to a service-connected condition or disability.
We have consulted with the VA and gathered information about its disability determination process. We have determined that a 100% or total disability rating from the VA represents a determination that the veteran has a total impairment in earning capacity, i.e., is unemployable. In addition, a veteran with a less than 100% disability rating may qualify for total disability based on an individual unemployability determination, if the VA determines that the veteran's service-connected disabilities are sufficient to result in unemployability.
Accordingly, there are two types of VA determinations that qualify a veteran for a discharge of his or her Title IV student loans based on the statutory standard:
1. A determination that the veteran has a service-connected disability, or service connected disabilities, that are 100% disabling; or
2. A determination that the veteran is totally disabled based on an individual unemployability determination.
The VA grants individual unemployability only for service-connected conditions. Therefore, any determination of individual unemployability qualifies a veteran for discharge. In the case of a determination that a veteran is 100% disabled, the determination must specify that the disabilities are service-connected.
III. Processing Loan Discharge Applications for Veterans Who Have Been Determined to be Unemployable Due to a Service-Connected Condition or Disability
The following procedures must be followed when processing a disability discharge request for a veteran:
The borrower must apply to the loan holder (i.e., the current owner of the loan) for a total and permanent disability discharge. For Perkins Loans, the loan holder is the Perkins school lender. For FFEL loans, the loan holder is the lender or, if a default claim has been paid on the loan, the guaranty agency. For FFEL or Perkins Loans that have been assigned to the Department, the loan holder is the Department. To apply, a borrower who has received one of the VA disability determinations specified above completes only Sections 1 and 3 of the recently approved Discharge Application: Total and Permanent Disability (TPD application) [OMB No. 1845-0065, Expiration Date: 12/31/2011] and submits the application to the loan holder.
For FFEL borrowers, the loan holder (either the lender or the guaranty agency) must ensure that the TPD application has been completed and that the appropriate VA documentation has been provided and must make a preliminary determination of the borrower's eligibility. If the current loan holder is the lender and the VA documentation indicates that the borrower is eligible for a TPD discharge, the holder must then submit the application and VA documentation to the guaranty agency. At the same time the FFEL lender should file a TPD claim with the guaranty agency. For FFEL borrowers, both the FFEL lender and the guaranty agency will make preliminary determinations of eligibility. For Perkins borrowers, the Perkins school must ensure that the TPD application has been completed and the appropriate VA documentation provided and make the preliminary determination of eligibility.
The preliminary determination of eligibility is based on the VA documentation provided by the borrower. FFEL lenders, guaranty agencies and Perkins schools must carefully review the documentation provided by the borrower when making preliminary determinations of eligibility. If the documentation clearly demonstrates that the borrower does not qualify for a discharge under the new statutory standard for certain veterans, the TPD request must be rejected by the FFEL lender, guaranty agency or Perkins school. For example, if the VA documentation states that the borrower is 100% disabled, but also states that the borrower's disabilities are not service-connected, the TPD claim must be rejected.
If the borrower appears to be eligible for a total and permanent disability discharge based on the VA documentation, the guaranty agency or Perkins school must submit a copy of the TPD application and VA documentation to the Department, and notify the borrower that his or her disability discharge request has been submitted to the Department for further review. The guaranty agency or Perkins school does not need to assign the loan to the Department.
After receiving the TPD application and supporting documentation from the guaranty agency or Perkins school, the Department will review the VA documentation. The Department may also contact the VA for more complete information regarding the borrower's VA disability rating. If the Department determines that the borrower meets the eligibility criteria for discharge under the standard for veterans with service-connected disabilities or conditions, the Department will instruct the guaranty agency or Perkins school to discharge the loan. Borrowers who are granted a TPD discharge through this process are not placed in a three-year conditional discharge period and are not required to provide any additional medical or income information to qualify for the discharge. The outstanding balance on the loan is discharged immediately.
Upon notification by the Department that the borrower qualifies for a discharge, the guaranty agency must pay the discharge claim to the lender. If the guaranty agency is the loan holder, it must discharge the loan. The Perkins school discharges the loan upon notification by the Department. For both FFEL and Perkins Loans, the loan holder refunds any payments that were made on or after the effective date of the grant of disability by the VA. A Rating Decision from the VA will generally state the effective date of the grant of disability in the section of the Rating Decision titled "Decision." The effective date of the grant of disability is NOT the Date of the Rating Decision or the Effective Date of Payment. A letter from a VA Regional Office may simply confirm the borrower's VA disability status, without providing an effective date. If the documentation provided by the borrower does not include an effective date, the Department will obtain the effective date from the VA, and provide that information to the guaranty agency or Perkins school. Receipt of a Title IV loan after the effective date does not disqualify a borrower for a TPD discharge; therefore the Department will not review the borrower's National Student Loan Data System (NSLDS) records for this purpose.
If a borrower's application for a TPD loan discharge based on VA documentation is denied by a Perkins school after its review or by the Department, the Perkins school must notify the borrower that the discharge request has been denied, and that the borrower must resume repayment on the loan. If the FFEL loan was held by a lender and the application is denied by a guaranty agency after its review or by the Department, the guaranty agency will return the claim to the lender. The FFEL loan holder will notify the borrower that the discharge request has been denied, and that the borrower must resume payment on the loan. The loan is deemed to have been in forbearance from the date collection activity was suspended. If the VA documentation suggests that the borrower may be totally and permanently disabled, but the borrower is not eligible for the total and permanent disability discharge process described in this letter because the borrower's disabilities are not service-connected, the FFEL loan holder or Perkins school must advise the borrower to re-apply for a TPD discharge through the standard TPD discharge process. To re-apply for a total and permanent disability discharge under the standard process, the borrower must have a physician complete the Physician's Certification Section of the TPD application and resubmit the TPD application to the loan holder. The borrower may include the VA documentation, as well as any other supporting documentation, along with the completed TPD application. The Department will take the VA documentation into consideration when conducting its medical review under the standard process for total and permanent disability discharges.
The borrower is not required to have a physician complete Section 4 of the TPD application. Instead, the borrower submits with the application documentation from the VA showing that the borrower has received a determination of individual unemployability or has been determined to be 100% disabled due to one or more service-connected disabilities. The borrower may provide a copy of the VA Rating Decision or a letter from the VA confirming that the borrower has received one of the qualifying ratings. As explained above, a rating of 100% disabled must specify that the borrower's condition is service-connected. After receiving the TPD application, the loan holder must suspend collection activity on the loan.
During the discharge process, loan holders must provide borrowers with a phone number they can call to speak with a loan holder representative if they have any questions about their discharge requests. The Department's Veterans Disability Discharge Unit (see contact information at the end of this letter) will assist loan holders in addressing questions about specific applications or processes for discharges on the basis of VA documentation. As with the current total and permanent disability discharge process, there is no formal appeals process for a borrower whose application for discharge has been denied.
IV. Application Availability and Effective Date For Use
We have revised the TPD application [OMB Number 1845-0065] to reflect changes to the TPD process made by final regulations that were published on November 1, 2007 [72 FR 61960], as well as the HEOA provisions described in this letter. The revised TPD application has been approved by the Office of Management and Budget and has been posted to the Department's Information for Financial Aid Professionals (IFAP) web site as an attachment to Dear Colleague Letters GEN-09-01, FP-09-01, and CB-09-01, which are available at this link:
While the revised TPD application is being phased in, Perkins, FFEL, and Direct Loan borrowers may apply for TPD discharges based on VA documentation using the earlier version of the application. The borrower may leave the Physician's Certification Section of the form blank when applying for a TPD discharge based on a qualifying disability determination by the VA. The Physician's Certification is in Section 3 of the earlier version of the TPD form, and is in Section 4 of the recently approved version. In place of the information requested in the Physician's Certification Section of the TPD form, the borrower must submit to the loan holder a copy of the appropriate VA documentation as described in this letter.
V. Triggering Date for Implementation
The procedures for granting total and permanent disability discharges based on VA documentation are in effect as of the date of this Dear Colleague Letter.
For FFEL and Direct Loan borrowers, total and permanent discharge requests based on VA documentation received on or after August 14, 2008 must be processed using the new procedures described in this letter. For Perkins Loan borrowers, total and permanent disability discharge requests based on VA documentation received on or after July 1, 2008 must be processed using the new procedures. Applications that were submitted on or after these dates and that are currently being processed under the "regular" TPD procedures may now be processed under the procedures outlined in this Dear Colleague Letter, if the borrower provides the appropriate documentation from the VA.
In addition to providing for total and permanent disability discharges based on VA determinations, the HEOA also modified the criteria for qualifying for a total and permanent disability discharge under the standard procedures. These new criteria will be effective July 1, 2010, and will be addressed in regulations that the Department will develop as part of the negotiated rulemaking process.
VI. Mailing Address
Guaranty agencies and Perkins schools should send total and permanent disability discharge requests based on qualifying VA documentation to the Department at the following address:
U.S. Department of Education
FSA, Business Operations, Processing Division
Veterans Disability Discharge Unit
61 Forsyth Street, SW 19T89
Atlanta, GA 30303
Please include a contact name, phone number and e-mail address with each submission. For submission questions, please contact the Department's Veterans Disability Discharge Unit by phone at (404) 562-6012, by fax at (404) 562-6059, or by e-mail to FSAAtlantaContracts@ed.gov. When calling, request the Veterans Disability Discharge Unit. When faxing or e-mailing, include "RE: Veterans Disability Discharge" in the subject line. The attached Questions and Answers provide additional information on the procedures for processing total and permanent disability discharge requests based on disability determinations from the VA. We look forward to working with you to successfully implement these new discharge procedures.
Daniel T. Madzelan
Delegated the Authority to Perform
the Functions and Duties of the
Assistant Secretary for
GEN-09-07; FP-09-05; CB-09-04: Procedures for discharging Title IV loans based on a determination by the Department of Veterans Affairs that a veteran is unemployable due to a service-connected condition or disability and Question and Answers in PDF Format, 556KB, 9 pages