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Biden administration automatically erasing student debt for borrowers with severe disabilities

The Biden administration will automatically wipe out federal student loan debt for borrowers who have a total and permanent disability, as it has done for veterans with a severe disability, meaning more than 323,000 borrowers who receive more than $5.8 billion in automatic student loan discharges. 

The federal government currently allows for the elimination of federal student loan repayments for those identified as having a total and permanent disability, but the Education Department's new rule would nix application paperwork and make the debt elimination automatic for borrowers who are already identified as having a total and permanent disability through the Social Security Administration. The Education Department also says it will try to eliminate the three-year monitoring period in which borrowers' debt could be reinstated if they do not respond to requests for income information. 

"Today's action removes a major barrier that prevented far too many borrowers with disabilities from receiving the total and permanent disability discharges they are entitled to under the law," Cardona said in a statement Friday. "We've heard loud and clear from borrowers with disabilities and advocates about the need for this change and we are excited to follow through on it. This change reduces red tape with the aim of making processes as simple as possible for borrowers who need support."

In 2019 under the Trump administration, the department already removed the application barrier for borrowers identified as having total and permanent disabilities who matched with the Department of Veterans Affairs. This latest rule will begin to go into effect in September. 

The Education Department points to a 2016 Government Accountability Office report that found 98% of reinstated student loan charges were because borrowers failed to submit requested documentation, rather than because they earned too much money to qualify.  

While all student debt eliminations will be free from federal taxes, the Education Department warned that borrowers will need to check with their state taxes offices to determine whether the discharge will be considered income and whether they will need to pay taxes on it. 

Progressives have been pushing the Biden administration to find possible ways to ease the student debt burden on Americans. In February 2021, President Biden asked the Justice Department to review the legality of canceling student loan debt, but also said during a February town hall that he doesn't think he has the authority to eliminate $50,000 in student loan debt. That, he said at the time, would require congressional action. 

The Biden administration is giving Americans what it calls a "final extension" on the suspension of their student loan repayment that will last until January 31, 2022.

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