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As reported by Danielle Douglas-Gabriel of The Washington Post (April 12, 2016)
The Obama administration plans to forgive $7.7 billion in federal student loans held by nearly 400,000 permanently disabled Americans.
By law, anyone with a severe disability is eligible to have the government discharge their federal student loans. The administration took steps four years ago to make the process easier by letting people who are totally and permanently disabled use their Social Security designation to apply for a discharge, but few took advantage. The Department of Education is now taking it upon itself to identify eligible borrowers and guide them through the steps to discharge their loans.
“Too many eligible borrowers were falling through the cracks, unaware they were eligible for relief,” said Education Under Secretary Ted Mitchell in a statement. “Americans with disabilities have a right to student loan relief. And we need to make it easier, not harder, for them to receive the benefits they are due.”
Working with the Social Security Administration, the department has been identifying borrowers receiving disability payments and have the specific designation of “Medical Improvement Not Expected,” which indicates they are eligible for the discharge. The agencies found 387,000 matches in its first review. About 179,000 of those people are currently in default on their loans, putting them at risk of losing their tax refunds and having their Social Security benefits garnished.
“The creation of the matching program is a great first step, but the administration needs to go further to ensure that no borrower who has a right to student loan relief has their benefits taken,” said Persis Yu, the National Consumer Law Center’s student loan borrower assistance project director. “Borrowers receiving SSDI need these payments to survive.”
Starting next week, borrowers identified in the match will receive a letter from the government explaining the steps needed to receive a discharge. They will not be required to submit documentation of their eligibility, unlike disabled borrowers who apply for the discharge on their own. Notification letters will be sent over a 16-week period, and followed up with a second letter after 120 days.
The letters will inform borrowers of the tax implication of the discharge, since the government has the right to tax the amount of money forgiven.
In a recent report by Social Security’s Technical Panel, disability rolls are expected to show their first year-over-year decline in the last 30 years. Interesting, as well, the panel found that the sharp increase in disability applications over the past 30 years was due to demographics (i.e. an aging babyboomer population and women entering the workforce), the economy and changes in program rules approved by Congress in the late 1980s. For more on this issue , see an excellent article by Michael Hiltzik of the Los Angeles Times.
In the final three months of 2016, the Social Security Disability Insurance trust fund will run out of money and beneficiaries will see an immediate 20 percent cut in benefits. Fortunately, there’s an easy fix: Congress can simply reallocate a small amount of payroll tax income from the larger Social Security retirement fund to the disability fund. In fact, this routine move has been done 11 times over the past several decades. And because the disability fund is so small compared to the general retirement fund, the fix would extend disability benefits until 2033 while hardly making a dent in the retirement fund.