Federal Student Loan Forgiveness Process Streamlined

Empire Justice December 27, 2012

On October 23, 2012, the Secretary of Education amended the regulations governing discharge of federal student loans based on total and permanent disability.  See Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program; Final Rule, 70 Fed. Reg. 212, 66,088 (Nov. 1, 2012) (to be codified at 34 C.F.R. pt. 674.61).  The new regulations, effective July 1, 2013, not only streamline the process borrowers must follow in order to apply for student loan discharge, but also streamline the process by which the Secretary determines whether a borrower is disabled.  Most importantly, disabled borrowers are no longer required to receive a second finding of disability from the Department of Education if they have already been found permanently disabled by the SSA.

Under the current regulations, borrowers with federal student loans held by two or more lenders must complete a separate total and permanent disability discharge application for each lender.  The new regulations streamline the process by requiring borrowers to submit only one application to the Secretary. See 70 Fed. Reg. 212, 66,126 (to be codified at 674.61(b)(2)(ii)(A).  Eliminating the need for borrowers to submit separate disability discharge applications to each of their loan holders is an important change.  The new process is intended to establish the Secretary as the single point of contact for the borrower throughout the loan discharge process, reducing the time required to process applications, and ensuring that all of a disabled borrower’s federal loans are discharged.  This will help prevent instances of “straggler” loans, which have occurred when a borrower forgets to include a loan while applying for discharges. Id. at 66,118.

The new regulations require the Secretary to provide the borrower with all of the information needed to apply for discharge of federal student loans based on total and permanent disability. Id.  The Secretary identifies all of the borrower’s Title IV loans, and directs the lenders to suspend efforts to collect from the borrower for 120 days while the total and permanent discharge application process is underway. Id. (to be codified at 674.61(b)(2)(ii)(B),(C)). Should a borrower fail to submit a discharge application to the Secretary within 120 days, collection on his or her loans would resume. Id. (to be codified at 674.61(b)(2)(iii)).

Once the Secretary receives a borrower’s application, it sends a notice to the borrower that the application was received, and explains the process by which the Secretary will review the application. Id. (to be codified at 674.61(b)(2)(ix)(A),(B),(C)).  If the Secretary approves the borrower’s application, it notifies the borrower and his or her lenders that the borrower’s discharge application has been approved, and directs the lenders to assign the borrower’s loans to the Secretary. Id. (to be codified at 674.61(b)(3)(iii)).  And if the Secretary determines that the application does not support a finding of total and permanent disability, it will notify the borrower of the reasons for the denial, at which point the borrower has 12 months to request a re-evaluation and provide the Secretary with additional information to support eligibility for discharge. Id. (to be codified at 674.61(b)(3)(vi)(A),(D)).  The borrower does not have to submit a new application upon denial.

Most notably, the amended regulations streamline the process by which the Secretary determines whether a borrower is totally and permanently disabled.  The current regulations require borrowers to submit a physician’s certification that the borrower is totally and permanently disabled as defined in § 674.51(aa)(1). Significantly, the new regulations allow a borrower to 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. Id. (to be codified at 674.61(b)(2)(iv)(A),(B)).

Borrowers who receive an SSA award for disability benefits indicating that the borrower’s scheduled disability review will occur within three years are not included under the new regulations.  Several commenters suggested that borrowers who receive an SSA award with scheduled review within three years should also be included in the new regulations.  The Department, however, declined to include those borrowers because the SSA three-year review schedule indicates that medical improvement is expected or possible for those borrowers. See id. at 66,092.

Advocates familiar with 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), which defines the categories:

  • Medical Improvement Not Expected (MINE) cases:  SSA will review once every 5 to 7 years.
  • Medical Improvement Possible (MIP) cases:  SSA will review once every 3 years.
  • Medical Improvement Expected (MIE) cases:  SSA will review 6-18 months following finding of disability.

Query whether these classifications will be readily available to the Department, or if the burden will be on the borrower to get them from SSA? And what about those MIE cases that are not reviewed in a timely fashion?  The preamble to the regulations suggests that if a borrower originally classified as MIP or MIE is able to demonstrate that s/he has nevertheless remained on disability benefits more than five years without a CDR and has not performed substantial gainful activity, the loan may be dischargeable.

The new regulations allow an SSA award for disability benefits to serve as proof of a borrower’s total and permanent disability for discharging federal student loans, and should improve consistency in eligibility determinations.  Streamlining this area of disability law is a step in the right direction towards eliminating inconsistent results between findings of disability from the Department of Education and the Social Security Administration.

Remember, however, that these new regulations only govern federal student loans.  Private student loan borrowers face a whole different set of obstacles, some of which were recently chronicled in a report by the Consumer Financial Protection Bureau.  See http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-report-finds-private-student-loan-borrowers-face-roadblocks-to-repayment/.  The CFPB has an Ombudsman program to assist borrowers with student loan issues.  The National Consumer Law Center’s Student Loan Borrower Assistance Project is another comprehensive resource for borrowers, their families, and advocates representing student loan borrowers.  See http://www.studentloanborrowerassistance.org.  Finally, South Brooklyn Legal Services (SBLS) has a new project with New York’s Community Economic Justice Resource Center (NEDAP) in New York City to assist veterans statewide with student loan issues.  The hotline number for this special project is (718) 237-5564.

Thanks to University of Buffalo law student Alexandra Lugo for her helpful summary of the new regulations.