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Student loan discharge for the disabled, part two

Last week, we began a discussion of the federal program that enables disabled student loan borrowers to discharge their loans. However, many who attempt to take advantage of the program find themselves dealing with a complicated process with unclear standards for approval and mystery denials. Many, including the federal student aid ombudsman, have recommended that the Department of Education do away with its review process and contract the decisions out to the Social Security Administration, which has a more solid disability review process in place. However, Education executives have resisted such change.

Because the Department of Education does not release such data, there are no available numbers to determine how many disabled applicants are rejected without cause every year. Approximately 75 percent of outstanding student debt is currently held by the federal government, with one-fourth owned by private lenders who are subsidized by the government. In general, even a disability will not discharge a privately-held loan.

But even federal loans are difficult to discharge, which the Department of Education says is done on purpose in order to protect the taxpayer-funded loans against fraudulent attempts to discharge. In 2000, the forgiveness program was made much more difficult after a Department review found that some borrowers who had been granted a discharge had begun earning wages again, despite their disabilities.

According to Mark Kantrowitz, a student financial aid consultant, the Department needs to consider mirroring the Social Security Disability process or other methods of application review in order to make the discharge program accessible and effective. "It certainly would be a more ethical method, and it would also be more efficient to have the student loan discharges rely on Social Security Administration determinations instead of having a separate duplicative process," he said.

Source: ProPublica, "Education Department Bureaucracy Keeps Disabled Borrowers in Debt", Sasha Chavkin, Cezary Podkul, Jeannette Neumann and Ben Protess, 13 February 2011

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