Obama to forgive the student debt of permanently disabled people

This is huge news:

The Obama administration plans to forgive $7.7 billion in federal student loans held by nearly 400,000 permanently disabled Americans.

By law, anyone with a severe disability is eligible to have the government discharge their federal student loans. The administration took steps four years ago to make the process easier by letting people who are totally and permanently disabled use their Social Security designation to apply for a discharge, but few took advantage. The Department of Education is now taking it upon itself to identify eligible borrowers and guide them through the steps to discharge their loans.

“Too many eligible borrowers were falling through the cracks, unaware they were eligible for relief,” said Education Under Secretary Ted Mitchell in a statement. “Americans with disabilities have a right to student loan relief. And we need to make it easier, not harder, for them to receive the benefits they are due.”

We got an email about this this morning. The new part is identifying those who are most likely eligible for the discharge through the Total and Permanent Disability Discharge. The Discharge has always existed but they have been improving the process over the years.

Despite the news story headline it is not a forgiveness. It is a discharge which means any discharged amount is considered taxable income. Also, you will may not be able to take out future federal student loans and you will not be able to earn income over a certain level for a few years.

Anybody that has federal student loans and is permanently disabled should take a look at www.disabilitydischarge.com.

If they use the same criteria they use for determining TPD for Social Security Disability, there will sure be a lot of people getting discharges that shouldn’t.

In order to use SSDI for approval, your eligibility reviews need to be 5 to 7 years from the date of your most recent SSA disability determination. I think this is what they are checking for before sending out the letters.

I wonder if they could do something similar for service related disabilities? Currently they will take the VA’s determination of total disability to approve the discharge. Theoretically they can check against that database and make it a bit easier for those folks.

That’s true of any student loan discharge, and frankly is the nuclear bomb waiting at the end of the rainbow for a great many borrowers who’ve taken out federal loans in the last 10 years and are now using IBR and ICR style repayment plans. Worst part is, it wasn’t nearly as well publicized or talked about as it is today when most of those loans were contracted. I fear we’re in for a major meltdown of some kind in about 15 years when the first of these federal loans are “forgiven” and thousands of Americans find they suddenly have a tax bill for $50,000 or more based on the amount of the loan “forgiven”.

I a retired on disability, but have no student loans. I have now to pay off the loans of other disabled retirees. Stupid me.

There are forgiveness’s that are tax free. Teacher Loan Forgiveness and Public Service Loan Forgiveness aren’t reported to the IRS. There haven’t been any loans forgiven through Public Service yet but they should start coming in soon.

You are right about the income driven repayment plans. The income driven plans have other problems too. For example, I was on IBR before I was married and my payments were not covering all of the interest. When I got married and filed jointly they took both incomes into account and I got booted off of IBR. What happens is that all of the unpaid interest is capitalized. I was hoping for Public Service Loan Forgiveness but since I’m not eligible for IBR and can’t afford the 10 year repayment amount I’m out of luck. There are people that have 6 figure loans that will be in big trouble if their income increases to the point where they get booted from the plan or when the loan is discharged and the balance increased dramatically. Can you imagine dealing with the taxes for a 1099C showing $200,000!

IBR and the like are band-aids that aren’t really helping student loan issues (unless you are going for PSLF and your income doesn’t increase too sharply)

Forgiven debt counts as income on that year’s tax returns, and it can cause problems for eligibility for aid/services. That is, this forgiven debt is not broken out from income, so it looks as though someone has earned more than they have, which can then trigger a reduction in benefits.

The letters that the government will be sending to eligible debt-holders will inform them of the tax implication of the discharge, since the government has the right to tax the amount of money forgiven, but it may not be entirely clear that it could affect their disability benefits.

It seems as though the mechanism to safeguard against a reduction in benefits hasn’t yet been put in place.

A significant reason why the government should not be in the student loan business in the first place, other than for veterans and the like.


Don’t have to imagine. I’m looking at that happening in about 20 years. :eek:

And you’re right PSLF is about the only out short of ensuring you have almost no personal assets when the tax bill comes due so they waive it. It’s why I’m searching for a job in the public sector right now.

Makes me wonder if it was all worth it. Two friends I know who make by far the most money barely graduated high school.

Well… now you have a an excuse to get a Master’s degree in Theology from an online Catholic college, like the Augustine Institute :smiley:

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