A $5.8 billion win for student loan borrowers with disabilities

ED's discharge of debt also includes reduction in red tape.
By: | August 19, 2021
Getty Images: Darren415

Nearly $6 billion in student loan debt is being eliminated for borrowers with  total and permanent disabilities (TPD) and they will receive other relief too, the U.S. Department of Education announced on Thursday.

More than 323,000 of those who have a match through the Social Security Administration will see discharges starting in September, and all debt is expected to be resolved by the end of the year. ED says the new guidelines will temporarily end the cumbersome process of borrowers having to fill out application forms. Previously only those with a match through Veterans Affairs (VA) were allowed this automatic path.

Despite having a verifiable data match through SSA, 50% of those with loans did not see relief, and in some cases, were placed into default status.

“Today’s action removes a major barrier that prevented far too many borrowers with disabilities from receiving the total and permanent disability discharges they are entitled to under the law,” said U.S. Secretary of Education Miguel Cardona. “We’ve heard loud and clear from borrowers with disabilities and advocates about the need for this change and we are excited to follow through on it. This change reduces red tape with the aim of making processes as simple as possible for borrowers who need support.”

ED also noted two other policy changes:

  1. It has promised not to ask borrowers for earnings information beyond the end of the pandemic, although it did not give a specific timetable. The Department said before that the introduction of new numbers or simply a borrower’s lack of a response would trigger loan resumption.
  2. It is considering eliminating the three-year monitoring period—via data match or physician’s certification—that could lead to borrowers not receiving their discharge because income levels have increased or they don’t reply to a request for that information. ED noted that a Government Accountability Office study done five years ago showed that 98% of those who had discharges denied simply failed to disclose information. So ED said it “will indefinitely stop sending automatic requests for earnings information even after the national emergency ends … and propose eliminating the monitoring period entirely” in October.

As for whether the discharged debt will be free from federal taxable income considerations, ED said borrowers should ask their local state tax office if it can affect state tax income.

In all, the Administration has discharged more than $8.5 billion in student loan debit—ranging from those who were defrauded by rogue institutions to those who simply did not respond to income verification requests. Though the government has delayed payments for millions because of the pandemic, it is unclear whether that will be extended beyond Jan. 31, 2022.