People with severe disabilities have been able to have their student loans forgiven ever since 1965. But it’s a daunting process that often fails those who need debt relief the most.
For example, a white paper produced by disability advocates tells the story of woman who lost both of her lower legs and was unable to work. She applied for Social Security disability payments and the discharge of her remaining student loan debt.
The benefits came through. But the student loan paperwork bounced back — because her doctor had forgotten to certify the ostensibly obvious fact that missing two legs below the knees counts as the kind of “very severe” impairment necessary for the debt to be discharged.
Bureaucratic obstacles like that one have cost billions of dollars for people with disabilities — a disproportionate number of them over 50 — that prevent them from earning enough money to continue repaying their student loans.
Now the federal government is trying to fix the process. But while critics say the improvements are substantial, there remain important caveats, especially for people over 62.
“The problem we’ve been trying to solve is a problem a lot of government programs face, which is just bureaucracy and complicated paperwork,” said Bethany Lilly, senior director of income policy at The Arc, which advocates for people with intellectual and developmental disabilities.
Reforms have been slow
You can have your student loans forgiven if you’re totally and permanently disabled, meaning unable to earn an income because of a medical or mental impairment that has lasted for at least five years or is expected to result in death. Veterans with service-related disabilities can also have their student loans discharged.
In practice, this proved “an illusory protection,” the Student Borrower Protection Center found. Many borrowers who were eligible didn’t know they were, or they got lost in “unnecessary bureaucratic hurdles,” all while trying to juggle student loan repayments with long-term medical costs on fixed incomes.
Among the biggest of those hurdles: a requirement that applicants annually verify their earnings to ensure that they weren’t gainfully employed. If they didn’t confirm their income, or if they defaulted on their loans, the government could take what they still owed out of their Social Security checks.
“It was terrible. It was absolutely terrible,” said John Whitelaw, advocacy director for the Community Legal Aid Society. “The Department of Education had really overly narrow rules on who might qualify.”
By 2016, about 114,000 borrowers age 50 and older were having up to 15 percent of their Social Security payments withheld because they had defaulted on their loans, according to an investigation by the U.S. Government Accountability Office. The GAO found that huge numbers of borrowers with disabilities had started but never finished the application process to have their loans discharged, even though they were likely eligible for loan forgiveness; 90 percent of people 50 and older who had their benefits withheld because they had defaulted on their loans were later found to qualify to have those loans forgiven.
The income verification requirement proved the culprit in many of those cases. About 20 percent of borrowers 50 and older who had managed to get their loans forgiven saw their debt abruptly reinstated — almost all of them because they didn’t submit the form, the GAO reported.
“All those people failed not because they were earning too much but because they couldn’t do the paperwork,” said Whitelaw. It’s particularly common, he said, for people with disabilities to be stymied by bureaucratic challenges like that.
Even when the Department of Education tried to make it slightly easier for them, many people still didn’t fill out the application to get their loans forgiven. In 2016, the department wrote to 234,000 borrowers of all ages who Social Security records showed were eligible to have their loans discharged because they were disabled, and who would likely be approved if they applied. Of those, fewer than 1 in 10 responded.
Under pressure from Congress and state attorneys general, the Department of Education in 2019 agreed to forgo the paperwork and automatically discharge the remaining student loan debt of about 20,000 veterans who were totally and permanently disabled. But the same accommodation wasn’t initially made for nonveterans until last year.
That’s when the department extended automatic forgiveness to nonveterans who the Social Security database showed met the definition of being totally and permanently disabled. It also temporarily dropped the requirement of an annual earnings verification, a change it has proposed making permanent. The new rules are expected to be finalized by November, a department spokesman said.
“They had all this data, and you would have thought they could have gone in and cross-walked it,” Lilly said, but it took until now to do that.
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Some good news
All of these changes have quickly resulted in the discharge of the remaining student loan debt of 400,000 borrowers with total and permanent disabilities, worth $7.8 billion, the department says.
“We’ve heard loud and clear from borrowers with disabilities and advocates about the need for this change,” said U.S. Secretary of Education Miguel Cardona.
But the new process relies largely on records from the Social Security Administration to establish whether people have total and permanent disability, or TPD — the determination needed to trigger automatic forgiveness of their loans. Trouble is, once they hit 62, people with disabilities are moved off the Social Security disability books and onto Social Security retirement benefits. In many of those cases, any disability they had may no longer show up in their files.
People who were not previously disabled but become disabled after they retire also might not have their loans automatically discharged. “If you develop a disability later on, and you’re over the age of 62 and, say, suddenly you need a wheelchair, you may be eligible when you weren’t eligible before,” said Lilly.
“You might not know you’re eligible for TPD discharge and it wouldn’t happen automatically for you,” she said. “I worry about people who just got missed.”
How to apply for forgiveness
Those people can still have their loans forgiven, though it means that they or their representatives will have to reenter the rabbit hole of red tape.
First, they need to download a TPD discharge application or fill one out online. Second, they have to get a doctor to verify their disability and gather other materials. Third, they have to wait for their loan servicer to give them an answer.
Thanks to a repayment pause that’s been in place since March 2020, eligible federal student loan holders are not required to make payments until after the end of August, when the pause is set to expire. But after that, assuming the pause is not extended again, they will.
“For the majority of people who have been on disability for some time, they’re going to get discharges at some point. What we’d hate to see is for collections to start up again before that happens,” Whitelaw said. “It’s a short-term, temporary problem, but it could be a devastating one.”
An estimated 8.4 million student loan holders are 50 and older, according to the Federal Reserve, which says they owe a combined $336.1 billion — or an average of $36,421 each — a fifth of the $1.59 trillion in student loan debt held by Americans overall.
There are two other cautions for people who get their loans discharged because of total and permanent disabilities: Some states tax the amount of loan debt that’s forgiven; and borrowers who are still in school or anticipate they might go back cannot get new federal loans once their existing loans are discharged, except in certain narrow cases. For these reasons, the Department of Education has promised that the automatic discharge process will have an opt-out provision.
As for that double amputee, she eventually got her loan discharged — after her doctor filled out the application for a second time and verified that not having much of her legs did, in fact, count as a “very severe” impairment.
Jon Marcus is the higher education editor at The Hechinger Reports and also writes for The Washington Post, The New York Times and others.