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Disabled Student Loan Borrowers Get New Options

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Congress has long given student loan debt special status, offering limited options to borrowers seeking to reduce their outstanding balances. Student loan servicers have long granted deferments and consolidations, but ask for a suspension of interest or a reduction of principal and the loan collection agent would just say no.

Student loan creditors even have extra power to collect — to the extent that looks more like IRS collection authority. Under some circumstances, a student loan creditor can garnish your wages without first having to obtain a judgment, and relief from student loan debt in bankruptcy almost never happens.

This is why it’s so surprising that the U.S. Department of Education released new regulations that make it easier to discharge student loans on the basis of disability. In a 60+ page revision of Sections 674, 682 and 685 of Title 34 of the Code of Federal Regulations, the Department of Education streamlined the process by which an obligee can apply for student loan debt forgiveness on the basis of the borrower’s (or guarantor’s) disability.

These new rules go into effect on July 1, 2013 and are the direct result of Congressional testimony and comments submitted by the public. The DOE’s about-face suggests that members of Congress sometimes do listen to the voices of their constituents in spite of the ongoing efforts of paid banking lobbyists.

Essentially the new rules provide that the Department of Education will use one standard form and set of rules to determine whether a student loan borrower should be granted full or partial relief from debt. Currently, each loan program (such as Perkins loans, Federal Family Education loans, Ford Direct loans and others) have their own forms and standards to determine eligibility for a modification.

Further, the new rules allow Department of Education adjudicators to use Social Security disability awards as evidence of permanent disability. Currently SSA disability determinations were not considered as evidence in a student loan disability determination.

Again the Department of Education’s new rules and procedures will not go into effect until July 1, 2013 and the agency has not yet published its new forms. Once in effect, the new rules should speed up the process of debt forgiveness determination and reduce the administrative burden on disabled borrowers.

The change in policy does offer some hope for more peace of mind for borrowers and their families burdened with unmanageable debt that would otherwise last a lifetime.

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  • Sharon Lenz

    Thank you for sharing this information because I am a disabled individual that is very concerned about my student loans, and wondering if there is a way out of them. Hopefully the new rules will help disabled individual’s being able to relieve some if not all of their debt burden from these loans. Although an education is priceless; looking back I see my living circumstances and other things (like over-optimism) may have caused me to make a wrong choice in choosing to go to college online. In addition, I will continue to fight, hope and pray for an end to my student loan miseries. Thanks Again!

  • Gerri Detweiler

    This is very helpful information for borrowers who are disabled and struggling with these debts. I would add, though, that getting loans cancelled due to disability triggers a 1099-C, the form that reports cancelled debt as income to the IRS. Borrowers who are thinking of applying for this relief would be wise to consult with a tax professional to avoid an unwelcome surprise in the form of a big tax bill. I wrote about this in this story: Cancelled Student Loan Debt Creates Tax Nightmare

  • http://blog.credit.com/author/christine-digangi/ Christine DiGangi

    You can apply for a Total and Permanent Disability Discharge if you’re receiving SSI:

    “If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination.”


    • Alice

      Thank you!

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