In a major change of policy, the Obama administration has directed the Department of Education to forgive $7.7 billion in federal student loans held by 387,000 permanently disabled people.
The Department of Education has offered loan forgiveness to the permanently disabled for some time (known as the total and permanent disability discharge), but few borrowers knew they were eligible or how to take advantage. Permanently disabled borrowers who did try were frustrated by ‘lost paperwork’ or being bounced back and forward between different Department of Education offices.
Under the new directive, the Department of Education will combine loan data with information from the Social Security Administration to identify eligible borrowers. Specifically, the Department of Education will look for information on borrowers receiving Social Security disability payments. Eligible borrowers who are receiving Social Security disability payments have been deemed permanently disabled and are unable to work.
The Total and Permanent Disability Discharge Is Now Much Simpler
The 387,000 eligible borrowers identified by the Department of Education will soon receive letters explaining their eligibility in addition to a document that must be signed to receive a discharge. Identified borrowers will simply sign the document and return it to the Department of Education.
In the past, borrowers would prove eligibility by receiving certification from a doctor that their disabilities have lasted 60 months (or are expected to) and could result in death. After proving eligibility, borrowers would have to then submit paperwork. Under this new policy, borrowers have already been identified as eligible and only have to sign and return a Department of Education form.
Why is this change of policy important? Student loan borrowers can have Social Security disability payments garnished for being in default on federal higher education debt. In some cases, borrowers with permanent disabilities rely on these payments as a primary source of income. Out of the 387,000 permanently disabled borrowers identified by the Department of Education, 179,000 were in default.
These people are unable to work and are incapable of receiving income. Given their circumstances, it is unreasonable to assume they are able to pay off their federal student loans.
Our Kansas City bankruptcy attorneys at The Sader Law Firm can help struggling borrowers manage their student loan debt.