The Education Department’s (ED) announced plans to cancel about $1.3 billion in student loan debt for 41,000 borrowers who had previously qualified for discharge but failed to receive it because of incomplete paperwork and waive certain procedures for another 190,000 borrowers.
“Borrowers with total and permanent disabilities should focus on their well-being, not put their health on the line to submit earnings information during the COVID-19 emergency,” Education Secretary Miguel Cardona said in a statement. “Waiving these requirements will ensure no borrower who is totally and permanently disabled risks having to repay their loans simply because they could not submit paperwork.”
Some borrowers will now see their cancellations come in effect without them having to submit additional earnings documentation during the pandemic. Iff they had made any payments between March 2020 and now, they would also be refunded that money. And about 190,000 borrowers who are in the three-year monitoring period wouldn’t have to submit earnings documents going forward, waiving that requirement, to qualify for a discharge.
Some experts in the space noted that the policy was misguided in the first place.
“This is really a tiny step and one that honestly shouldn’t have even been necessary,” Persis Yu at the National Consumer Law Center told Yahoo Finance. “It’s pretty outrageous that the department allowed these loans to be reinstated during the pandemic in the first place. … so while it’s important that they’re doing this action, it’s not so much a cause for celebration.”
For a borrower to qualify for a total and permanent disability discharge under current law, they’d have to submit an application form and then provide documentation of their earnings for three years for consideration. If they miss out on paperwork during this three-year monitoring period, their debts would be re-instated.
According to one report, around 400,000 borrowers across the country in 2019 technically qualified for a total and permanent disability discharge because. But since the process is opt-in and they would need to apply to ED to get cancellation, Yu noted, they’ve missed out.
“We are talking about by definition, about a population that has disabilities, and some of those disabilities are cognitive, like … traumatic brain injuries,” Bethany Lilly, co-author of the report and senior director of income policy at The Arc, told Yahoo Finance. “There’s a chunk of this population that isn’t going to be very good at paperwork.”
Former President Donald Trump signed an executive order in 2019 that called on ED to notify more than 25,000 veterans who qualify for total and permanent disability discharge of their eligibility for cancellation. Importantly, Yu noted, the order also automated the process and removed the three-year wait for those borrowers.
ED said it was aware of these two critical fixes and was looking to expand relief policies.
“Those are things that are under consideration but they cannot be done right away,… [they] take some time,” an official explained. “We are continuing at what else we can do here … [but] total and permanent disability, much like a lot of our programs, is not working as efficiently as it should, and we’re continuing to see what we can do to.”
Yu stressed that relief policies that leave out so many relevant borrowers is an indication of “the failure of targeted relief. Whenever you create unnecessary bureaucracy around getting relief to borrowers, borrowers who need that relief will fail to get it. … this is why we need widespread student debt cancellation.”
House Education and Labor Committee Chair Bobby Scott (D-VA), who supports recent moves by ED to help student loan borrowers, stated that the announcement “is yet another example of how the Biden Administration is using its authority to improve the lives of student loan borrowers and their families.” Scott added that he hoped the momentum will continue, and ED “will continue providing expedited loan relief to eligible borrowers who were largely ignored by the previous Administration.”
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Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.
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