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Student loan forgiveness: Education Department discharges $5.8 billion for disabled borrowers

·4 min read

The Education Department (ED) is discharging $5.8 billion in student debt held by over 323,000 federal student loan borrowers who are totally and permanently disabled in a win for advocates who urged the Biden administration to make the move.

Education Secretary Miguel Cardona told reporters that the move was "in alignment with our strategies from day one to put our borrowers at the center of the conversation," adding that ED is looking to make more improvements in this type of targeted loan relief program such Public Service Loan Forgiveness and regarding a massive backlog of borrower defense applications for debt relief.

Alex Elson, senior counsel at the National Student Legal Defense Network, which was among the groups that has been pushing ED to forgive the loans, told Yahoo Finance that the latest action was "a life-changing announcement for hundreds of thousands of people, and it's precisely what we've been calling on the department to do for a long time now."

Catie Walsh smiles with her aid, Doris Wagner, a paraprofessional at Tulpehocken High School during commencement ceremony. Walsh, who was diagnosed with cerebral palsy, wanted to leave her wheel chair behind and walk across the field to receive her diploma. Photo by Natalie Kolb 6/7/2017 (Photo By Natalie Kolb/MediaNews Group/Reading Eagle via Getty Images)
Catie Walsh, who was diagnosed with cerebral palsy, walks across a field to receive her diploma on 6/7/2017 (Photo By Natalie Kolb/MediaNews Group/Reading Eagle via Getty Images)

The action affecting borrowers who have a total and permanent disability (TPD) brings total student loan forgiveness enacted by the Biden administration to roughly $8.7 billion. Federal actions amid the pandemic will lead to roughly $100 billion in total student loan forgiveness between March 2020 and September 2021, according to Education Department (ED) data and analysis from experts.

The wave of student debt relief has provided a financial lifeline to the roughly 45 million student loan borrowers owing more than $1.7 trillion in outstanding federally-backed debt. At the same time, some Democrats and experts are still urging the Biden administration to enact broad-based student debt cancellation.

"The Department’s actions today will provide meaningful relief to hundreds of thousands of borrowers," Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, told Yahoo Finance in a statement. "Today’s action will take one step towards fixing a fundamentally broken system, but more still needs to be done. Millions of borrowers are still waiting for President Biden to make good on his promise to provide widespread student loan cancellation.”

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'Life-changing' move by the U.S. government

Federal loan borrowers with TPD can generally apply for debt relief through a process created by Congress in 1965. Under a program set up by the Obama administration, the Social Security Administration (SSA) determines borrowers' eligibility. 

If an eligible borrower opted in, they'd be subjected to a three-year monitoring period.

Since the start of the SSA collaboration, 818,074 borrowers have been identified as eligible for a TPD discharge and 300,405 were granted $8.8 billion. However, the process stalled for 517,669 others.

The new regulation by ED will apply to those borrowers who are identified as eligible through the existing data match with SSA. Furthermore, the process will also be automatic — borrowers will not have to fill out an application to get relief. 

"This process is going to be a smooth process for borrowers where they're not going to have to be applying for it, or getting bogged down with paperwork," Cardona said. "We recognize that these borrowers are eligible and we are moving swiftly to provide relief of $5.8 billion to them."

U.S. Education Secretary Miguel Cardona addresses the daily press briefing at the White House in Washington, U.S. August 5, 2021.  REUTERS/Jonathan Ernst
U.S. Education Secretary Miguel Cardona addresses the daily press briefing at the White House in Washington, U.S. August 5, 2021. REUTERS/Jonathan Ernst

ED also noted that the agency would also "indefinitely extend the policy announced in March to stop asking these borrowers to provide information on their earnings." ED expects affected borrowers to get notices of their approval for discharge "in the weeks after the match" in September, and the "expects that all discharges will occur by the end of the year."

A discrepancy remains: Previously released federal data stated that as of May 2021, over 517,000 individuals had not received the relief to which they are legally entitled while the Thursday announcement only covers 323,000 of those borrowers.

"Our understanding is that the [517,000] is essentially the numbers that are accumulated over multiple quarterly matches done over multiple years," an ED senior advisor explained on the call. "And so as a result. there are borrowers who may have applied, there are who may have been double counted because they are essentially showing up in multiple matches. So this 323,000 is our count of who we think will get the discharge is based upon the last quarterly match we did in June, who had not yet applied so those would be the most updating comprehensive numbers there."

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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