Department to automatically discharge loans for disabled borrowers

Student loan borrowers with a total and permanent disability will now have their loans automatically discharged under a new regulation announced Thursday by the Department of Education, continuing the Biden administration’s focus on targeted student debt relief.

More than 323,000 borrowers are expected to benefit, totaling around $5.8 billion in canceled debt. Borrowers who qualify for the discharge have already been identified through data matching with the Social Security Administration, which will continue, but they will no longer be required to also fill out an application before receiving relief.

“This process is going to be a smooth process for our borrowers, where they’re not going to get bogged down with paperwork,” Secretary of Education Miguel Cardona told reporters.

The department ended the application requirement in 2019 for borrowers who were identified as eligible for a total and permanent disability, or TPD, discharge through data matching with the Department of Veterans Affairs. But it didn’t do the same for those identified through the SSA, and only about half of those borrowers who were deemed eligible have had their loans discharged.

The change will go into effect in September after the department’s next quarterly data match with SSA. All discharges are expected to occur by the end of the year.

“If the federal government is already in possession of data that will fast-track borrowers receiving their benefits, figuring out how [the Office of Federal Student Aid] can get access to that information for automatic loan relief must be a top priority,” said Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators. “We applaud FSA for operationalizing this benefit and making it permanent. We hope this sets a strong precedent for doing the same for other borrower populations.”

The department also announced its intent to eliminate through its upcoming negotiated rule making the three-year income-monitoring period that has been a part of the TPD discharge process. Currently, borrowers could lose their discharge if their earnings are above a certain threshold, or if they don’t respond to a request for earnings information during that three-year period. The latter is more common — a 2016 report by the Government Accountability Office found that 98 percent of reinstated discharges occurred because borrowers didn’t submit the requested information.

Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, said she was “encouraged” to see the department pursuing broader changes to TPD discharge through the rule-making process.

“In addition to committing to eliminating the three year monitoring period during the upcoming rulemaking, which has prevented many borrowers from getting relief under the disability discharge program, we hope the department will take this opportunity to expand the eligibility criteria to better match the intent of the law, and to find additional ways to identify borrowers who miss out on relief due to our kafkaesque student loan system,” Yu said in a statement.

Organizations and lawmakers have been pushing for the department to automatically discharge loans for disabled borrowers in recent months. Seventeen organizations, led by the NCLC, sent a letter about it to Cardona in June, while a bipartisan group of lawmakers urged the department earlier this month to move forward on the issue “expediently.”

The new regulation aligns with the Biden administration’s priority of improving “our targeted loan relief program,” said Cardona. Since March, the department has provided approximately $8.7 billion in targeted student debt relief for almost half a million borrowers.