On April 16, 2016, the U.S. Department of Education announced a new process to proactively identify and assist some disabled federal student loan borrowers who may be eligible for Total and Permanent (TPD) loan discharge. Eligible borrowers will receive a letter explaining they are eligible for loan forgiveness and steps they need to take to receive a discharge.
The Treasury Offset Program (TOP), allows borrowers’ defaulted debts owed to federal and state governments, including student loan debt, to be paid down by offsetting other federal benefits that the debtor would receive, including Social Security Disability payments.
The Higher Education Act allows for loan forgiveness for borrowers who are totally and permanently disabled. To be found permanently and totally disabled, borrowers must be designated by Social Security as “Medical Improvement not Expected” (MINE). The MINE designation means that Social Security does not believe your condition will improve, although they will set your case for review in seven years.
The Department of Education is working with the Social Security administration to identify those individuals designated as MINE so they are eligible for a streamlined process where they sign and return a completed application. Other people with student loan debt maybe eligible for TPD discharges, but they need to submit additional proof to request the discharge and the process is not streamlined.
While this is good news, under the current law, the amount of loans discharged are counted as income for the tax year in which the discharge is granted, and SSDI benefits can be garnished to pau for taxes on the amount of loans discharged.
A new bill has been proposed in the Senate, S. 2800, which would make discharged student loan debt no longer taxed as income. Learn more about the proposal here.