Financial advisors and borrowers will have to get busy if they wish to take advantage of the most recent automatic student loan forgiveness initiative for individuals receiving Social Security disability payments.
Today’s press release is relatively straightforward for those who are already receiving Social Security disability payments, but is silent in regards to those whose Social Security disability applications are pending or have not yet been filed. According to the SSA (Social Security Administration) website, it generally takes anywhere from 3 to 5 months for the agency to reach a decision. This is not including any additional time that may be spent filing for reconsideration or waiting for a hearing date. The whole process can take up to 3 years.
The long awaited announcement comes as a relief to many borrowers who have been unable to obtain and maintain employment due a physical or physiological mental impairment and are therefore unable to pay back their student loans. While borrowers have been previously able to use the Total and Permanent Disability (TBD) discharge program to have their student loans canceled, individuals were required to fill out a formal application and many borrowers were not aware that they even qualified for loan forgiveness.
While those who are receiving Social Security disability payments have and will be able to obtain student loan forgiveness by filing an application through the Total and Permanent Disability (TBD) program, it is unclear how long the “automatic” forgiveness will last.
Over 323,000 Federal Student Loan Borrowers to Receive $5.8 Billion in Automatic Total and Permanent Disability Discharges
Today’s Department of Education pronouncement simplifies the process and provides for automatic forgiveness of student loans for borrowers who are receiving disability benefits through the Social Security Administration. The Department of Education will conduct a data match of those receiving Social Security disability payments to identify the eligible individuals with outstanding federal student loans. The next data match will occur in September with individuals receiving discharges within the following weeks. The Department of Education estimates that all those eligible for student loan forgiveness will receive the discharge before the end of 2021.
The proposed schedule in the Department of Education’s press release leaves many unanswered questions:
- What if my Social Security disability application is still pending in September when the data match is conducted?
- What if I haven’t started by Social Security disability application?
- Could I still receive automatic student loan forgiveness if my application takes a full three years to process?
- Will regular data matches be conducted to ensure that future Social Security disability recipients will automatically receive student loan forgiveness? If so, how often will these data matches be performed?
Social Security Disability Eligibility
While it remains to be seen whether future recipients of Social Security disability will receive automatic student loan forgiveness, many financial advisors may encourage their disabled clients to apply for disability benefits with the possibility of also receiving federal student loan forgiveness. However, advisors and individuals should be aware of the low success rates and stringent requirements that, in addition to the lengthy waiting period, may prevent many from ultimately receiving automatic student loan forgiveness.
Recent SSA data reveals that the percentage of approved disability applications is roughly 30%. The majority of applications who are awarded benefits are approved during the initial application stage, with a small percentage of applicants receiving benefits after filing for reconsideration or obtaining a disability hearing. There are currently 8.2 million Americans receiving an average disability payment of $1,277 per month.
To be eligible for benefits a person must:
- be insured for benefits
- be younger than full retirement age,
- have filed an application for benefits, and
- have a Social Security–defined disability.
Meeting the insured requirement means that a person must have worked long enough— and recently enough — under Social Security. The number of work credits (quarters of coverage) a person needs to qualify for benefits depends on the individual’s age when he or she becomes disabled.
Section 223(d)(1) of the Social Security Act defines disability as an —
(A) inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, or
(B) in the case of an individual who has attained the age of 55 and is blind (within the meaning of blindness as defined in section 216(i)(1)), inability by reason of such blindness to engage in substantial gainful activity requiring skills or abilities comparable to those of any gainful activity in which the individual has previously engaged with some regularity and over a substantial period of time.
For example, if Joe Smith worked as a construction worker for 10 years and then suffered a tragic fall at 45, leaving him wheelchair bound and unable to continue working in any capacity, he would be eligible to receive disability benefits.
It is possible that with the current “liberal winds” that are blowing, there will be a reduction in the strict requirements for Americans to qualify for disability benefits. Many may feel that it is unfair to pay 12-14% of their income for a benefit package that does not allow them to receive anything as long as they can perform some sort of “sit-down” low-skill job, such as being a surveillance system monitor or a Walmart greeter.
The strict requirements lead many disabled people who do not qualify to rely on donating plasma, collecting bottles, or engaging in illicit means of supporting themselves in order to simply get by.
The August 19th announcement will provide much needed relief to hundreds of thousands of permanently disabled Americans by eliminating the need for Social Security disability benefit recipients to complete an application to obtain student loan forgiveness, but how long this initiative will last and exactly how many people it will affect is not yet clear.