During this long run-up to the 2020 presidential election, the issue of student loan debt has been a frequent topic in the political conversation. Under long-established federal law, student loans cannot be discharged in bankruptcy. If you have a student loan, you owe it until you pay it off.
If you are collecting Social Security and you default on your student loan, the government can garnish your benefit checks to pay for federal student loans. There is, however, one important exception. If you are disabled and have qualified for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you may be eligible for what’s known as a total and permanent disability discharge. This allows you to have your federal student loans wiped away if you have a physical or mental disability that makes it impossible for you to work.
Despite the rules governing total and permanent disability discharge, the government frequently has taken money away from SSDI benefits to pay down student loans. Recently, federal agencies admitted that these garnishments were not permitted and have refunded money to some of the affected student loan borrowers, but it took a lawsuit to make this happen. Brooklyn Legal Services, a division of Legal Services NYC, brought a suit in 2016 against multiple federal agencies, which was finally settled in May of this year. Nine plaintiffs were refunded nearly $23,000 that was improperly garnished from their disability benefits to repay their student loans.
This case highlights a flaw in the system which critics have complained about for years—a lack of information from the government, from those companies and non-profit organizations which manage student loans, and especially from the companies hired to collect on delinquent student loans. The U.S, Department of Education, which has the oversight responsibility for the administration of student loans, has taken some steps to improve the flow of information.
As an outcome from the lawsuit, the government agreed to change the way it sends a garnishment notice to a borrower. Previously, there was no mention in the notice about disability discharge. Now, the disability discharge will be spelled out in the notice and it will include a website and phone number disabled borrowers can use. The government agreed to send the notice to the last address any agency has on file for the borrower, including the address where disability benefits are being sent. Prior to this court case, government agencies were using the address of the borrower’s most recent tax filing. Because many disabled persons do not have enough income to require filing income tax returns, those addresses were often old and out-of-date.
Additionally, the Department of Education is cross-referencing its records with the Social Security Administration to identify borrowers who qualify for the disability discharge. It is estimated that there are nearly 400,000 people who may qualify. The Department is sending them application forms to sign and return if they want their student loan debt rescinded. However, some advocates for the disabled say the government should go further and automatically cancel all student loan debt for those individuals they know will qualify for disability discharges.
“The creation of the matching program is a great first step, but the administration needs to go further to ensure that no borrower who has a right to student loan relief has their benefits taken,” said Persis Yu, the National Consumer Law Center’s student loan borrower assistance project director. “Borrowers receiving SSDI need these payments to survive.”