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Student Loan Forgiveness Streamlined for Disabled Borrowers

December 12, 2012

The U.S. Education Department recently streamlined its process for discharging (forgiving) student loan debt for borrowers with severe, long-term disabilities. The most significant procedural change accepts the findings of the Social Security Department as evidence of disability. The reform also makes it easier for attorneys and family members to act on behalf of disabled borrowers during the loan discharge process.

The Department of Education announced that these changes will take effect on July 1, 2013, although it reserves the right to implement new policies at an earlier date. Presently, borrowers seeking to discharge student loans for serious disability must undergo a separate federal investigation to determine the seriousness of the disability by the Department of Education, independent of any findings by the Department of Social Security.

Disabled borrowers will be able to prove that they have a long-term disability by submitting a Social Security award letter to the Department of Education. The individual will qualify for a student loan discharge if the award letter states that the individual is not scheduled to undergo a medical review for at least five years. Disabled borrowers who are scheduled for medical review within a five-year period will be separately investigated by the Department of Education.

The streamlined loan discharge process also establishes a single point of contact through the Department of Education, rather than through individual lenders, to reduce processing time and provide more consistency in determinations. These changes, and other reforms in the Department of Education, are estimated to have a net budget impact of $2.1 billion in subsidy cost “over the 2012 to 2021 loan cohorts,” the regulations specified.

If you are disabled and have collectors hounding you to pay student loan debts, speak with an experienced bankruptcy attorney and learn how the federal laws can help. Bankruptcy is not the only answer to a financial problem, and your attorney can discuss your options for eliminating, reducing, or repaying your outstanding debts.


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