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Disability and federal student loan forgiveness

The Education Department has proposed new rules to overhaul its program for forgiving student loans for borrowers who become disabled. Under federal law, borrowers who suffer in an accident or become disabled because of a disease are entitled to have their loans forgiven. If you are disabled in California, you may qualify for Social Security disability benefits and loan forgiveness.

An investigation by a private organization found that the federal government's system for evaluating disability was keeping many genuinely disabled borrowers drowning in student debt. Under the proposed reforms, the department would streamline the application process and improve communication with borrowers to eliminate many of the bureaucratic struggles that have posed challenges for applicants in the past.

The standard of forgiving loans is "total and permanent disability." The law is different from Social Security which can always cut off benefits if a patient recovers. Both standards define disability as being unable to "engage in substantial gainful activity."

The department did, however, reject a key reform that would have allowed many disabled borrowers to bypass all review, tying the Education Department's standard for disability to that of the Social Security Administration. Under this reform, the Social Security disability findings could also be used to discharge loans.

Though the Department rejected using SSA standards for disability, new changes will allow borrowers to submit a single discharge application to the Education Department. Prior to this reform claimants had to undergo an initial review by a loan holder and guarantor who could summarily reject an application before it reached the department.

Some experts believe that the standards to dismiss student loans should be aligned with certain Social Security findings so that disabled borrowers don't have to climb through the same hurdles twice. You may need an attorney advocate to help you secure disability benefits and to ensure that you provide the appropriate documentation to qualify for loan forgiveness.

Source: Huffington Post, "Disability Review Program Broken for Student Loan Forgiveness, Under Review By Education Department," Sasha Chavkin, July 19, 2012.

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