In August, the Department announced that it would automatically discharge the loans of over 323,000 disabled borrowers. These borrowers were identified through a matching program with the Social Security Administration (SSA). This announcement follows the Department’s 2019 decision to automatically discharge the loans of veterans with a service-connected disability. The VA auto discharge program is done under a separate matching program with VA.
This is good news for disabled borrowers struggling with student debt. Congress created the Total and Permanent Disability (TPD) program to discharge the federal student loans of all eligible disabled borrowers. These are borrowers who, because of their disability, cannot engage in gainful employment to pay back their student loans. However, the Department created rules that made it harder for these borrowers to get the relief they are entitled to by law. The rules required borrowers to submit a TPD application with documents verifying their disability. The Department created three pathways to apply for a TPD discharge:
- Based on a borrower’s social security disability status,
- Based on a borrower’s VA service-connected disability status, and
- Based on a disability certification by a physician
In addition, after being granted a discharge, borrowers had to report their income yearly for three years. Failing to comply with the reporting requirement resulted in the reinstatement of the previously discharged loan.
Only borrowers identified through the SSA matching program qualify for auto discharge
In 2016, the Department created a matching program with SSA to identify borrowers who qualify for a TPD discharge based on their disability status. These borrowers are within SSA’s medical improvement not expected category (MINE). Before the Department’s auto discharge announcement, these borrowers had to submit a TPD application even though the Department knew who they were and had access to their information through the matching program. Going forward, these borrowers will no longer have to apply to have their loans discharged. The Department will automatically discharge their loans after receiving their qualifying disability information through the matching program.
How will I know when my loans are auto discharged?
The Department started the auto discharge process for the first group of loans last month. It expects to completely discharge all eligible loans by the end of this year. All discharges will be free from federal taxes—borrowers will not have to pay federal income tax on the debt that was discharged. However, some states may tax the discharged amount as income.
Borrowers identified through the matching program will receive a letter from the Department informing them that their loans have been approved for automatic discharge. Those borrowers who wish to opt out for any reason will have the option to do so.
I am a veteran, but I did not get auto-discharge through the VA matching program; what should I do?
Veterans whose loans were not auto discharged under the VA matching program may receive automatic loan discharge under the matching program with SSA if they receive Social Security benefits, and SSA has found them to be totally and permanently disabled and not likely to improve.
If a Veteran believes that they are eligible for a TPD discharge based on their service-connected disability but did not receive an automatic discharge under the VA matching program and does not qualify for auto discharge under the SSA matching program, they should submit a TPD application to Nelnet for discharge based on their service-connected disability. Their application should attach VA documents showing that they have a service-connected disability that is 100% disabling or are unemployable due to a service-connected disability.
I am not eligible for the VA or SSA matching programs; what should I do?
Borrowers who do not qualify for auto-discharge are not entirely out of luck. They can still apply for a disability discharge by submitting a TPD application to Nelnet. The application must include the completed physician certification form verifying their disability. The certification form is on the second page of the TPD application.
What about the income reporting requirement?
In addition to the auto discharge policy, the Department announced that it was indefinitely suspending the burdensome yearly income reporting requirements for TPD discharges. This means borrowers will not risk reinstatement of a discharged student loan due to the reporting requirement.
Are there more changes coming to the TPD Program?
The Department is seeking to make the TPD discharge process less burdensome for disabled borrowers. Through the ongoing 2021 Affordability and Student Loans Negotiated Rulemaking Committee, the Department has proposed:
- Eliminating the three-year post-discharge yearly income reporting requirement,
- Expanding the number of SSA categories that would allow borrowers to qualify for TPD discharge to include borrowers on SSA’s compassionate allowance list, borrowers in SSA’s Medical Improvement Possible Category (MIP), and borrowers within the MINE category who move on to SSA’s retirement file, and
- Accepting TPD Certification from licensed nurse practitioners and physician assistants.
These proposed changes were discussed earlier this month during the first session of the rulemaking committee. For the first time, the disability community has a representative on the committee. Borrowers are encouraged to share their stories with the committee through public comment at the end of each committee meeting. The second session of the rulemaking is scheduled for November 1-5, 2021. Please click here for more information on registering to watch the committee’s meetings or to submit a public comment during the meetings.