Automatic Discharges Announced for Student Loans

Empire Justice Center October 19, 2021

On August 19, 2021, the U.S. Department of Education announced that over 323,000 borrowers who have a total and permanent disability (TPD) will receive more than $5.8 billion in automatic federal student loan discharges.  Advocates will recall that in 2012, the Department of Education amended its regulations governing discharge of federal student loans based on total and permanent disability.  But not all disabled borrowers were aware of or able to take advantage these provisions.  See the December 2012, June 2016, and April 2021 editions of the Disability Law News.


There have been significant challenges to qualifying for discharge as the borrower must submit either a physician’s certification, or an SSA notice of an award for SSDI or SSI benefits indicating that the borrower’s scheduled disability review will be within five to seven years.  Advocates familiar with the Social Security Administration’s (SSA’s) Continuing Disability Review (CDR) process will recognize these time frames as associated with the classification of the impairment for which benefits were granted. See 42 U.S.C. §§421(i) & 1382c(a)(3)(H)(ii); 20 CFR §§ 404.1590(c) & (d), 416.990(c) & (d).


Although these eligibility criteria have not been changed, the new regulation will allow the Department of Education to provide automatic TPD discharges for borrowers who are identified through administrative data matching.  They remove the requirement for these borrowers to fill out an application before receiving relief.  The change was to go into effect with the Department’s next quarterly data match with SSA in September. Borrowers will receive notices of their approval for a discharge in the weeks after the match.  The Department expects that all discharges will occur by the end of the year.  Borrowers who wish to opt out of their discharge for any reason will have an opportunity to do so.  All discharges will be free from federal income taxation but there may be some state income tax consequences.



The Department of Education also announced a permanent change through negotiated rulemaking to requirements that caused borrowers to lose their discharges.  Under the regulations, a borrower who receives a TPD discharge through the SSA match or the physician’s certification process is subject to a three-year income monitoring period.  During this period the borrower may lose their discharge if their earnings are above a certain threshold, or they do not respond to a request for earnings information.  A 2016 report by the Government Accountability Office found that 98 percent of reinstated disability discharges occurred because borrowers did not submit the requested documentation, not because their earnings were too high.  In late March, the Department restored $1.3 billion in loan discharges for 41,000 borrowers who had seen their loans reinstated after not responding to requests for earnings information.


The Education Department will indefinitely stop sending automatic requests for earnings information, continuing a practice that the Department announced in March 2021 for the duration of the national emergency.  And the Department has proposed eliminating the monitoring period entirely as part of on-going negotiated rulemaking.


Negotiations are also on-going to broaden the definition of total and permanent disability for federal student loan discharges.  For more on student loan debt, see Delivering on Student Debt, in particular the section on Relief for Borrowers with Disabilities authored by John Whitelaw, Advocacy Director, Community Legal Aid Society, Inc. (Delaware) and Bethany Lilly, Director of Income Policy, The Arc.