We have been calling on the government for years to stop offsetting Social Security benefits of disabled student loan borrowers. Recipients of Social Security Disability (SSDI) payments generally qualify for disability discharges. Yet most do not know about the discharge program and do not know that applying for a discharge stops offsets and cancels loans.
As part of the March 2015 Presidential Student Aid Bill of Rights Memorandum, President Obama required by July 1, 2015 that the Secretary of Education and the Director of the Office of Management and Budget, in consultation with the Commissioner of Social Security, develop a plan to identify Federal student loan borrowers who receive Social Security Disability Insurance (SSDI) and determine which beneficiaries qualify for a total and permanent disability discharge of their student loans. The agencies were required to specify a process for the Secretary of Education to stop collection on qualified borrowers in order to ensure that SSDI benefits are not reduced to repay student loans that are eligible for discharge. In addition, the Obama Administration required the agencies to identify the best way to communicate with other SSDI recipients who hold student loans about their repayment options, including income-driven plans, and assist them in entering those plans.
Although this component of the memorandum may have received less attention, it is critically important in ensuring that disabled borrowers get relief. To keep the process moving, the Department provided notice in November of a new computer matching program between the Department of Education and the Social Security Administration. This program is intended to make sure that the Department can figure out which student loan borrowers are receiving SSDI and inform them of the disability discharge process.
There are three ways for federal student loan borrowers to meet the Department of Education disability discharge standard:
1. Veterans who have been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition qualify for this discharge without having to provide additional documentation from a doctor, or
2. If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within 5 to 7 years from the date of your most recent SSA disability determination, or
3. You can submit certification from a doctor that you are totally and permanently disabled.
The new matching program is intended to help SSDI recipients apply for this relief. It does not change the application or approval process. Rather, it is an important way to make sure that SSDI recipients know about the disability discharge program and can stop offsets of the payments they need to survive.
Borrowers should be advised that a successful disability discharge application will cancel a federal student loan, but that is not the end of the process. The Department will continue to evaluate borrowers for three years and can reinstate the loan in certain circumstances. In addition, the amounts discharged due to disability may be taxable income. The Department says that it is required to report to the I.R.S. the discharge of any debt greater than $600 as income in the year that the loan was discharged, not at the end of the three year monitoring period. However, borrowers may not have to pay taxes. For example, borrowers may be able to claim insolvency status using I.R.S. Form 982. We continue to urge Congress and the Department to eliminate this tax penalty.
There are many other developments that student loan borrowers should know about. We will post more information soon, including help understanding the new Revised Pay As You Earn plan that will be “open for business” in a few weeks.