Education Dept. Will Forgive $5.8 Billion in Student Loan Debt for Some Disabled Borrowers
Published on August 23, 2021
- Student loan borrowers with total and permanent disabilities are eligible for debt discharge.
- Many don't know they are eligible, and some see their debt reinstated based on failure to file paperwork.
- New regulations from the Dept. of Education make it easier for disabled borrowers to get and stay debt-free.
Federal student loan borrowers with total and permanent disabilities (TPD) are ensured debt forgiveness by law. However, many borrowers don't know they're eligible for TPD discharges. In 2019, the Department of Education (ED) removed the requirement that eligible borrowers file an application to receive relief, instead providing automatic relief for borrowers identified through the Department of Veterans Affairs.
A new regulation includes more eligible borrowers and forgives more than $5.8 billion in student loan debt. According to the ED, the regulation change will impact over 323,000 individuals. Secretary Miguel Cardona says the change "reduces red tape with the aim of making processes as simple as possible for borrowers who need support."
The change will go into effect in September. The ED anticipates the discharges will be accomplished by the end of the year. While the discharges will not be considered income for federal tax purposes, they may be subject to state income tax.
Under former Secretary Betsy DeVos, the ED identified borrowers as eligible for TPD discharges using Department of Veterans Affairs data. Under Cardona, the search will also leverage Social Security data. Just about half of the borrowers identified as eligible through Social Security matching have received the discharge, the ED reports. This new approach was adopted in response to comments on the previous rule that were published by the Department in 2019.
The ED will also indefinitely extend a pandemic measure eliminating the requirement that borrowers who receive TPD discharges must provide information about their earnings. Previously, earning above a certain threshold or failure to report earnings resulted in the reinstatement of loans.
According to a 2016 report by the Government Accountability Office, 98% of the time borrowers who lost their TPD discharge didn't earn too much, but had simply failed to submit the required paperwork. The ED will propose permanently eliminating this filing requirement in the negotiated rulemaking that begins in October.
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