Total and Permanent Disability Discharge – a Great Relief for Student Loan Borrowers

by | Published on Dec 12, 2016 | Social Security Disability

Staying abreast with the news and updates in social security disability information is important for disability lawyers as well as their support services including medical review services and medical record retrieval services that play a vital role in the disability medical review process. One such recent development is the student loan forgiveness program, which is considered a proactive help for disabled borrowers. We are talking about the total and permanent disability discharge (TPD), which relieves students from having to repay or comply with the obligations associated with certain types of federal student loans because they are totally and permanently disabled. To qualify for TPD, the borrower must meet one of the following criteria:

  • He/she is receiving SSDI or SSI benefits, with a review date of no less than 5 – 7 years from the date of their most recent Social Security Administration disability determination.
  • The U.S Department of Veterans Affairs has determined that the borrower is unemployable on account of a service-connected disability.
  • A physician has certified that the borrower is totally and permanently disabled or is “unable to engage in any substantial gainful activity” because of a medical/physical impairment that could result in death, that has lasted for a continuous period of at least 60 months, or can be expected to last for a period of at least 60 months.

This April, the U.S. Department of Education sent a letter to around 387,000 federal student loan borrowers informing them that they may be eligible for the total and permanent disability discharge. According to the Department of Education, around 179,000 of these borrowers are in default. Defaulted loans have serious consequences such a loss of certain government payments, which can have a grave impact on students with disabilities. This new proposal is aimed at helping these borrowers maintain those benefits and inform them of the discharge they may qualify for. To make the process easy and identify eligible borrowers, the department worked with the SSA.

  • They identified borrowers who receive SSDI payments and also fall in the group “medical improvement not expected.”
  • Those identified get to bypass the documentation that is typically needed to prove their eligibility. Since the Department of Education is working with the SSA, eligible borrowers only have to sign and return their application to receive the discharge.
  • In case the borrower does not reply with a completed application after 120 days, the department will once again notify them of their eligibility for the program. This step is highly significant because many borrowers, especially defaulters, tend to ignore communications related to their student loan.
  • Those who are approved for TPD will be monitored for a period of 3 years. During this period, they may be asked to submit income or other documentation to prove that they remain eligible for the discharge. Borrowers have to respond to each of these notices, failing which they stand the risk of having the loans reinstated.
  • The government will continue to identify eligible borrowers on a quarterly basis.

There is no doubt that TPD will be a great relief for many borrowers. However, there is a hitch. When a loan is discharged, the department reports any balance of more than $600 to the IRS. That is, if the disabled Americans who qualify for TPD opt for it, they could face an audit from the IRS informing them that they owe taxes to the federal government.

The IRS needs to take action to change a law that requires the balance of forgiven student debt to count as income. If the balance amount is taken as taxable income on the basis of the borrower’s situation, the student borrower may end up with a tax bill in the place of a student loan bill. The borrowers who qualify for debt relief are people who are severely disabled and have only a very slim chance of seeing any improvement in their conditions, or getting a job where they can make an income that could be considered “substantial gainful activity.” Many Social Security lawyers are of the opinion that the IRS has a legal and moral obligation to help these disabled individuals and believe that the agency must do so.

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