In an about face from former policy the U.S. Department of Education has released new regulations, effective on July 1, 2013, which state that a student loan borrower’s repayment obligations may be discharged if that borrower has been found totally and permanently disabled by the Social Security Administration. In an absorbing 61 page restatement of Sections 674, 682 and 685 of Title 34 of the Code of Federal Regulations, the U.S. Department of Education has announced its new, streamlined procedures.
This new policy changes the procedure used by a student loan borrower can petition the Department of Education for loan forgiveness based on the borrower’s total and permanent disability. Under current procedure borrowers with student loans issued under the Perkins loan program, the FFEL loan program or the Ford Federal Direct Loan program could apply for forgiveness on the grounds of disability but the forgiveness rules did not recognize a Social Security Disability Award as proof of total and permanent disability.
In an effort to streamline the total and permanent disability process, the Department of Education will now use a common disability forgiveness procedure for all of its student loan programs rather than a different procedure for each. More importantly, a disabled borrower can now include a copy of his Notice of Award from Social Security as proof of disability. Under current rules, the Department of Education would make its own, independent decision about a borrower’s medical or mental health disability.
Under today's procedures, a student loan borrower found disabled by Social Security would essentially have to pursue a second finding of disability from the Department of Education. This process would entail tracking down the appropriate application from the relevant loan program, filling out the form, obtaining and submitting medical evidence. If an applicant in this process wanted to secure legal help, he could do so but would have to pay an attorney out-of-pocket as there was obviously no lump sum payment to support a contingency fee payment like there is a Social Security disability claim.
As a practical matter, many permanently disabled student loan borrowers became subject to seizure of disability benefits by the Department of Education, mainly because they did not know about or were unable to complete the application for disability discharge of those obligaitons.
The Department of Education’s new procedures will require some changes in Social Security’s disability determination procedure. Student loan forgiveness under these new regulations only applies if Social Security determines that an approved claimant shall be subject to a continuing disability review every five to seven years, as opposed to subject to review every three years. SSD claimants approved under a three year continuing review status are not considered totally and permanently disabled by the Department of Education, where as SSD claimants on a 5 to 7 year review schedule are deemed more severely disabled.
Currently, however, Social Security does not routinely include in its Notice of Award whether a claimant shall be subject to a 3 year review or a 5 year review. A 3 year review case is one where medical improvement is likely and the claimant has a good chance at improving sufficiently to return to work. A 5 year review case is one where medical improvement is not likely. Presumably SSA awards will now include this information in its awards.
Further, Social Security has not met its goals in conducting continuing disability reviews. In my practice I receive only 2 or 3 calls yearly about continuing disability reviews from existing clients or prospective clients – I expect that SSA will be putting a great deal more focus on continuing reviews in the next few years. Finally, the Department of Education has not yet released its new “streamlined” disability discharge applications. These new student loan discharge regulations do not go into effect until July 1, 2013 so the new discharge applications will most likely be released in the spring of 2013.
The Department of Education’s new regulations changing its procedures to incorporate Social Security findings of total and permanent disability in student loan disability applications represents a reasonable accommodation to the government’s otherwise hard-line approach to student loan debt forgiveness. It will be interesting to see if bankruptcy judges will begin to consider Social Security disability awards in Section 523(a)(8) student loan hardship discharge litigation.