U.S. Department of Education to Address Indebtedness of Student Loan Borrowers with Disabilities

By Lauren Walizer

The Department of Education (ED) has announced that by matching student loan records against data from the Social Security Administration (SSA), it has identified 387,000 federal student loan borrowers who, due to their disability status, qualify for the Totally and Permanently Disabled (TPD) discharge, yet continue to unnecessarily struggle with student loan repayment.  Nearly 179,000 of these individuals are already in default on their loans.

To address this issue, starting next week, ED will begin notifying these borrowers–who have been determined by the SSA to be TPD, meaning their disability status will not improve–of their eligibility for loan forgiveness and provide them with an application for forgiveness that they can complete through the mail or online. CLASP encourages entities that work with individuals with disabilities to raise awareness around this issue.

This push by ED will ease the burden of student loan debt for tens of thousands of disabled borrowers and potentially forgive up to $7.7 billion. Without a TPD discharge, when disabled borrowers default, they may be subject to the Treasury Offset Program capturing their Social Security disability payments to repay their student debt. This is extremely problematic, as many recipients of Social Security disability payments rely entirely on these payments to support themselves.  Nonpayment of student loans can also affect credit scores, which may make it harder for borrowers to secure housing.

Like most other federal loan forgiveness options, the loan amounts discharged through TPD may be subject to taxation. The Obama Administration’s proposed FY 2017 budget calls for excluding such discharges from taxable income; if the budget were enacted, ED could automatically discharge loans for borrowers who have been identified as TPD.  CLASP encourages Congressional action to prevent disabled borrowers from having to pay taxes on any discharged amounts.