$5.8 billion in student debt to be canceled for some with disabilities. What to know
The U.S. Department of Education announced Thursday it will automatically discharge $5.8 billion in student loan debt for more than 323,000 borrowers with disabilities.
The department said it will also change or propose changes to its policies on requesting and monitoring the financial information of borrowers with disabilities after they receive debt relief.
“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,” U.S. Secretary of Education Miguel Cardona said in a statement.
Here’s what to know about the debt cancellation and the policy changes.
Who is affected
The debt forgiveness will apply to 323,000 borrowers who “have a total and permanent disability” and are legally entitled to relief that they have not received.
“The change will apply to borrowers who are identified through an existing data match with the Social Security Administration (SSA),” the Education Department said.
A person found to be “totally and permanently disabled” by either the SSA, Department of Veteran Affairs or a doctor can already get federal student loans discharged, according to The Washington Post.
But “the benefit has never been widely publicized, so few have taken advantage,” the Post reported. “And when they do, many are met with tedious paperwork and requirements.”
How it works
The discharges will automatically be applied to eligible borrowers through “administrative data matching” with the SSA by “removing the requirement for these borrowers to fill out an application before receiving relief.”
The Education Department said in 2019 it removed the application requirement for borrowers identified as being eligible for the relief through a data match with the Department of Veterans Affairs.
“However, it had not yet done so for those identified through the data match with SSA,” the department said. “As a result, only about half of borrowers identified as eligible for (total and permanent disability) through the SSA match have received the discharge, causing thousands to stay in repayment or possibly even default.”
Other changes the department is making
The Education Department said it’s also changing, or proposing to change, some of the requirements that it says previously “have caused too many borrowers to lose their discharges.”
While the federal government already offers student loan debt relief to borrowers who have a total and permanent disability and limited income, the Associated Press reports current regulations require that they submit documentation of their disability and participate in a three-year monitoring of their earnings.
“A 2016 report by the Government Accountability Office found that 98 percent of reinstated disability discharges occurred because borrowers did not submit the requested documentation, not because their earnings were too high,” the Education Department said.
First, the Education Department said it will “indefinitely extend” a policy from March to stop asking borrowers with total and permanent disabilities to provide information on their earnings, which it says often resulted in “the reinstatement of loans if and when borrowers do not respond.”
The department also said it will also propose “the elimination of the three-year monitoring period required under current regulations during the negotiated rulemaking that will begin in October.”
When the loan relief will happen
The department said the discharge change will take effect in September during its “quarterly data match with SSA.”
“Borrowers will receive notices of their approval for a discharge in the weeks after the match and the Department expects that all discharges will occur by the end of the year,” the department said.
Those who want to opt out of the discharges will have the option to do so.
“All discharges will be free from federal income taxation but there may be some state income tax consequences,” the Education Department said. “Borrowers will be and are encouraged to consult their state’s tax office to understand whether this discharge will be considered income under their state’s tax code.”
Why it matters
Advocates have previously urged the Education Department to automatically provide debt relief to borrowers who the SSA identified as having a permanent disability and to eliminate the monitoring period, the AP reported.
“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,” Cardona said. “This change reduces red tape with the aim of making processes as simple as possible for borrowers who need support.”
Dan Zibel, vice president and chief counsel of the National Student Legal Defense Network, said in a statement that this is a “life-altering announcement for hundreds of thousands of student loan borrowers with disabilities.”
“We have long been calling on the Department to take this step and eliminate unnecessary red tape that has kept too many people caught in a cycle of debt,” Zibel said. “Today’s step is another indication that the Department is listening to the voices of student loan borrowers.”
This story was originally published August 19, 2021 at 4:36 PM with the headline "$5.8 billion in student debt to be canceled for some with disabilities. What to know."
