Student loan forgiveness for veterans totaling “hundreds of millions of dollars” was delayed for a month. Now, it’s back on track.
Here’s what you need to know.
Student Loan Debt Forgiveness
According to reporting from Politico, the U.S. Department of Education suspended hundreds of millions of dollars of automatic student loan forgiveness for veterans with severe disabilities. A memo reviewed by Politico, and confirmed by an Education Department spokesperson, stated that the Education Department delayed processing student loan discharges for veterans.
The reason? Bureaucratic rules. First, the background. President Trump signed an executive order in August to make it easier for disabled veterans to receive student loan forgiveness. The current student loan discharge program for disabled veterans is known as Total and Permanent Disability (TPD) Discharge. Trump directed the federal government to have an “expedited” process for military veterans who are permanently and totally disabled to have their federal student loans discharged.
While student loan discharge for disabled veterans is not a new program, less than half of the nation’s 50,000 disabled veterans have received a student loan discharge due to a complicated application process that required veterans to complete paperwork to get forgiveness. Under the executive order, the student loan forgiveness is automatic.
However, only about 3,300 veterans have received student loan forgiveness since August, according to Politico. Despite the executive order, the Office of Management and Budget (OMB) had to approve new regulations written by the Education Department before the Education Department could legally proceed with automatic student loan forgiveness. Now that OMB has approved the new regulations, the Education Department plans to start forgiveness for approximately 24,000 veterans within days.
How Student Loan Discharge Works
This is how student loan discharge has traditionally worked for disabled veterans. Borrowers who are identified received a letter that explains eligibility for student loan discharge as well as a Total and Permanent Disability Discharge application. The borrower then signed and returned the application to apply for the discharge.
For more information:
Monday – Friday: 8:00 AM – 8:00 PM (ET)
Email: [email protected]
Address: U.S. Department of Education, P.O. Box 87130, Lincoln, NE 68501-7130.
Your Rights If You Have Student Loan Debt And Are Permanently Disabled
The Consumer Financial Protection Bureau estimates that tens of thousands of disabled veterans may not know that they are eligible for student loan forgiveness. Since the formation of the federal student loan program, borrowers who are considered totally and permanently disabled have been eligible to have their federal student loans forgiven.
Student loan forgiveness in this context includes:
- Veterans who the Department of Veterans Affairs has determined are unemployable due to a service-connected disability
- Borrowers receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits
- Borrowers certified as “totally and permanently disabled” by a physician
Importantly, cancellation of your student loans here are only for federal student loans. That may cause worry if you have other student loans. If you have private student loans, check with your lender regarding options for permanent discharge. Many private student lenders offer similar permanent discharge benefits. In 2016, the Education Department collaborated with the U.S. Social Security Administration to identify borrowers with disabilities who were eligible for permanent discharge. The joint effort found 387,000 borrowers with disabilities, who collectively owed over $7.7 billion in federal student loans. About half of those those borrowers were in default on their student loans (and evidently not aware of the student loan forgiveness program).
No Income Tax
Disabled veterans will not owe any federal income taxes on discharged student loan debt. Trump also urged states also to absolve those veterans who receive student loan discharge of state income taxes.
Veterans Have A Right To Opt-Out
Within 60 days of notification of their eligibility, veterans can decline the discharge of their federal student loans. Why would a veteran decline student loan relief? There may be several reasons, but the Education Department notes that a veteran may decline student loan debt relief due to potential tax liability or if it makes it more difficult to borrow future student loans.
For borrowers who take this approach, a student loan calculator may be able to determine your best strategy for student loan repayment.
The expedited student loan forgiveness program hopefully should work seamlessly to help America’s heroes and their families for their selfless service.