The U.S. Department of Education has streamlined the process for individuals with disabilities to apply for a discharge of their student loans, and the agency is getting the word out to more people who may be eligible. But this discharge option might not be a good fit for everyone who is eligible.
The student loan disability discharge is available to individuals who are “totally and permanently disabled.” You may notice that this is the same standard used by Social Security to determine eligibility for disability benefits. Yet, until 2013, the Department of Education imposed cumbersome requirements to apply and demonstrate eligibility. Now, most individuals who are eligible for social security disability benefits are also eligible for a student loan discharge, provided that their medical review period is between 5 and 7 years. Under this policy change, disability determinations by the Veteran’s Administration will also be recognized. The U.S. Department of Education has recently made efforts to identify and reach out to potentially eligible individuals.
But the disability discharge comes with some significant strings attached.
First, the loan could be reinstated if the individual has significant employment earnings following the discharge. After the discharge is granted, there is a three year monitoring period where the U.S Department of Education watches to see if the individual is earning income. If a person earns more than 100% of the poverty level for a family of two, regardless of household size, within the monitoring period, then the loans will be reinstated. In Ohio, this limit is currently $16,090 per year.
Second, the discharge can make it difficult for individuals with disabilities to go back to school to get training for a new line of work. Once a loan has been discharged because of disability, the individual must obtain a doctor’s certification in order to become eligible for a new loan. Vocational rehabilitation services may be available to pay for schooling, but a disability discharge can complicate the process.
These rules have some logic—if an individual can still earn money, then he or she should be able to repay their student loans. Also, if an individual has obtained a discharge of loans due to inability to work due to disability, it makes sense to require a doctor’s certification that the disability will pose a barrier to training in a new field.
Unfortunately, the rules also have the effect of positively discouraging individuals with disabilities from seeking retraining, employment and earnings opportunities. For other federal programs, including Social Security, and Medicaid, Congress has created work incentives to remove barriers to retraining and work for individuals with disabilities. These incentives recognize that while individuals with disabilities area capable of working with appropriate accommodations and workplace supports, it may be necessary to pursue different career options and it is often more difficult for individuals with disabilities to find a keep a good job. Consequently, for student loan borrowers with disabilities, it may make more sense to wait to return to work until after the three year monitoring period is over, to avoid the risk of having student loans reinstated after a failed work attempt.
If you are wondering whether you should apply for a disability discharge, contact Emily to schedule an appointment to discuss your concerns.