We have long argued that the Department of Education should tie its standards for student loan disability discharges to Social Security standards. At last, we are starting to see some progress in this area.
Some changes are already in effect, but most will not kick in until next year. By that time, the process should run much more efficiently for many disabled Social Security recipients.
The Department of Education announced the most important change when it issued final regulations on November 1, 2012. The regulations allow certain Social Security recipients to apply for the student loan discharge using their Social Security status as proof of disability. This change goes into effect on July 1, 2013.
The streamlined process is available only to Social Security recipients classified as having medical conditions that are not likely to improve. Most recipients do not know whether they are in this category, but they should know (or can find out) the time line for when Social Security will review their disability determination. If the review is not for 5 years or more, these recipients are in the “medical improvement not expected” category and can submit proof of this status to apply for a student loan discharge. They will still have to fill out the Department of Education form, but they do not need to submit a separate physician signature and other information from a physician.
Unlike veterans considered totally disabled with service-connected conditions, the Social Security recipients will face possible reinstatement of their loans. This can occur if they have earnings above a certain amount any time during the three years after discharge or take out new government loans during this period. This is where the second important change comes in. The Department says that it will now accept Social Security benefits statements as proof that borrowers do not have earnings above the allowable limit. (The limit is the poverty level for a family of two).
This is a breakthrough because until now, these borrowers were often stuck in a bureaucratic nightmare. Many disabled individuals who are not working are not required to file taxes. Yet the Department would only accept tax documents as proof of earnings or lack of earnings.
The Department is required to create a new form for borrowers to provide income information during the reinstatement period. In the meantime, the Department says that it is already accepting Social Security statements during the 3 year “watch” period.
This is how the Department explains the process for monitoring earnings from employment:
The Department will require you to submit documentation of your employment earnings, generally on an annual basis. To do so, you may submit any of the following as documented proof of income:
- Filed income tax return, with all attachments,
- Pay stubs showing year-to-date income,
- W2, or
- Social Security Statement. (Visit www.ssa.gov/mystatement. You must set up an account to see, download, save and print your full statement of earnings.)
NOTE (from the Department of Education): If you did not earn income from employment, send us a letter signed by you or your representative specifying the tax year(s) for which no income was earned.
The new process should be more efficient because there will be less duplication of government agency disability determinations. Although not all Social Security recipients will qualify for the streamlined process, those who do not qualify will still be able to apply through the current system by providing a form signed by a medical doctor.
There is still work to do to make sure that the process works for borrowers. For example, the Department should let Social Security recipients know about the streamlined process and how to figure out if they are in the Social Security “medical improvement not expected category.” But it is a good first step and shows that the Administration listened to ongoing complaints from borrowers and to media reports about serious problems with the disability discharge process.