Automatic Student Loan Forgiveness Coming for Nearly Half a Million

Automatic student debt assistance is on the way for nearly half a million borrowers due to recent rule changes at the U.S. Department of Education.

In a flurry of loan relief announcements, the Education Department outlined several groups of student loan borrowers who will receive automatic aid unless they choose to opt out.

The groups include some current and former service members, borrowers with qualifying permanent disabilities that prevent them from working and attendees of the defunct ITT Tech who inadvertently took out “misleading” loans that the for-profit college chain allegedly disguised as grant money.

In total, an estimated 485,000 borrowers qualify for automatic relief.

The Education Department has identified these borrowers through data-matching agreements with several other federal agencies, including the Social Security Administration, the Department of Veterans Affairs and the Department of Defense.

All of the borrowers that the Education Department has identified qualify for longstanding student loan relief programs through the agency. Many borrowers were either unaware of the programs or weren’t able to apply. Through the data-matching partnerships, the Education Department  is able to confirm borrowers’ eligibility without the need for them to do so.

This latest wave of aid brings the Education Department’s student loan forgiveness tally to $9.5 billion in 2021. Those not included in this round of forgiveness may still benefit from the pause on federal student loan payments, which has been extended until Jan. 31, 2021.

Here’s a closer look at who’s receiving the automatic aid.

323,000 Borrowers With Qualifying Disabilities

For federal student loan borrowers that have qualifying total and permanent disabilities, the Department of Education is providing $5.8 billion in automatic loan forgiveness, according to an announcement from the agency.

By accessing records from the Social Security Administration and the Department of Veterans Affairs, the Education Department identified an estimated 323,000 borrowers that are eligible for its total and permanent disability (TPD) loan discharge program.

Automatic discharge qualifications include:

• Participation in a federal student loan program (i.e. William D. Ford Federal Direct Loan program, Federal Family Education Loan program, Federal Perkins Loan program and/or the TEACH Grant service program).
• A total and permanent disability that prevents you from working, as determined by the Social Security Administration or the Department of Veteran Affairs.

The Department said it will complete its next quarterly data match process in September and notify those who are eligible “in the weeks after the match.” The agency plans to discharge the loans by the end of the year.

Going forward, the Department told The Penny Hoarder that federal student loan borrowers who are determined to be totally and permanently disabled by the VA or SSA will be identified for automatic discharge on a quarterly basis.

Many other disabled federal student loan borrowers are eligible for a TPD discharge but will have to apply manually — a process which staff attorney Alpha Taylor of the National Consumer Law Center called “overly burdensome.”

“For now, things will remain the same for borrowers who are not eligible for a TPD discharge based on the data matching program with SSA and VA,” Taylor told The Penny Hoarder. “They will still have to complete the overly burdensome TPD application process and submit a physician certification to have their loans discharged.”

155,000 Borrowers Defrauded by ITT Technical Institute

Before ITT Technical Institute closed its doors in 2016, the for-profit school deceived some students into taking on unnecessary debt.

“The institution engaged in widespread misrepresentations about the true state of its financial health and misled students into taking out unaffordable private loans that were allegedly portrayed as grant aid,” the Department of Education announced.

Approximately 155,000 former ITT students are now eligible for debt forgiveness after a new review of ITT Tech’s deceptive activity. The education department determined students who attended ITT but did not finish their degree starting as early as March 31, 2008 are now eligible for loan discharges.

To qualify for automatic discharge:

• You attended ITT Tech on or after March 31, 2008; and
• You took out qualifying student loans to pay for your schooling; and
• You did not complete your degree or certificate program.

The education department will complete its data match process in this month and notify eligible borrowers in the following weeks.

ITT Tech is one of more than 50 defunct schools included in the Department of Education’s Closed School Discharge program. Other schools include The Chef’s Academy, Concordia University, Corinthian Colleges, Everest University and dozens more.

This discharge program typically provides automatic loan forgiveness to qualifying borrowers three years after a school’s closure. However, if you believe you are eligible and you don’t want to wait three years, you may apply to the program manually to receive a speedier discharge.

47,000 Current and Former Service Members

Due to a data-matching agreement — this time with the Department of Defense — the education department is retroactively waiving student loan interest for at least 47,000 current and former active-duty service members.

This benefit should not be confused with loan discharge, aka forgiveness. It affects only the interest on the loan(s).

Qualifying service members for this benefit were or are deployed to “areas that qualify them for imminent danger or hostile fire pay,” according to the Department, and must have taken out a federal student loan on or after Oct. 1, 2008.

Only a small percentage of qualifying service members have accessed the benefit. In 2019 before the data-matching agreement, the Department said it waived interest for only 4,800 service members.

“Now the Department is able to identify federal student loan borrowers who serve on active duty by matching records to DOD’s personnel records,” the Education Department stated in a news release. “As a result, the Department can automatically provide the student loan interest benefit.”

What Happens When the Education Department Doesn’t Collect on Student Loan Debt?

Each time the Department of Education forgives a loan, it removes a financial burden for someone who pursued higher education. Simultaneously, the department loses out on money it was owed.

When we’re talking about 43 million borrowers who owe more than $1.7 trillion, the cost of forgiveness can add up quickly. Even the tailored relief provided by the department so far in 2021 accounts for $9.5 billion.

How does the department operate without those funds? Could loan forgiveness affect the budgets of other aid programs? What about everyone else with student loan debt?

The Department of Education did not respond when The Penny Hoarder posed those questions. However, a recent Brookings report by Adam Looney sheds some light. Looney is a nonresident senior fellow at Brookings, a former deputy assistant secretary at the U.S. Treasury Department and a tax policy expert.

“Even modest student loan forgiveness proposals are staggeringly expensive and use federal spending that could advance other goals,” Looney opens his report.

He argues that blanket student loan forgiveness tends to benefit whiter, better-educated and higher-income people who may not need the aid as badly as others. And while good natured, the cost of widespread forgiveness rivals the spending of unemployment insurance, food assistance programs and other government programs intended for Americans who need the aid the most.

Looney clearly favors more tailored loan forgiveness programs. And though President Joe Biden has voiced support for broad student loan forgiveness, his administration seems to be taking Looney’s advice.

Adam Hardy is a reporter and editor based in St. Petersburg, Florida. He covers personal finance, the gig economy, government benefits programs and other ways to make and manage money, and is a former staff writer for The Penny Hoarder. Connect with him on Twitter @hardyjournalism.

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