Financial advisors and borrowers will have to work hard if they want to take advantage of the most recent initiative to automatically write off student loans for people receiving Social Security disability benefits.
Today’s press release is relatively straightforward for those already receiving disability benefits but says nothing about those whose Social Security applications are pending or have not yet been submitted. According to the SSA (Social Security Administration) website, the agency usually takes 3 to 5 months to make a decision. This does not include additional time that may be spent filing a request for reconsideration or waiting for a hearing date. The entire process can take up to 3 years.
The long-awaited announcement came as a relief for many borrowers who have been unable to find and keep a job due to a physical or physiological mental disorder and therefore cannot pay off their student loans. While borrowers were previously able to use the Total and Permanent Disability Statement (TBD) program to cancel their student loans, individuals were required to complete a formal application and many borrowers were unaware that they were even eligible for loan forgiveness.
While those who receive Social Security disability payments have and will be able to receive student loan forgiveness by completing a Complete and Permanent Disability (TBD) application, it is unclear how long automatic forgiveness will last.
Over 323,000 Federal Student Loan Borrowers to Receive $ 5.8 Billion Automatic Disability and Permanent Disability Statements
Today’s Ministry of Education announcement simplifies the process and provides for automatic cancellation of student loans for borrowers receiving disability benefits through the Social Security Administration. The Department of Education will cross-reference data on individuals receiving Social Security disability payments to identify eligible individuals with outstanding federal student loans. The next data comparison will take place in September and people will be discharged in the coming weeks. The Ministry of Education estimates that all those eligible for student loan forgiveness will be laid off by the end of 2021.
The proposed timetable in a press release from the Ministry of Education leaves many questions unanswered:
- What if my Social Security Disability Application is still pending in September when the data is being compared?
- What if I have not yet started applying for Social Security disability?
- Can I get an automatic student loan forgiveness if it takes three full years to process my application?
- Will the data be regularly collated to ensure that prospective recipients of Social Security disability benefits automatically receive student loan forgiveness? If so, how often will these data be matched?
The right to social security for disability
While it remains to be seen whether future Social Security disability recipients will receive automatic student loan forgiveness, many financial advisors may encourage their disabled clients to apply for disability benefits with the option to also receive federal student loan forgiveness. However, consultants and individuals should be aware of low success rates and stringent requirements that, in addition to long waiting periods, can prevent many from ultimately receiving automatic student loan forgiveness.
The latest SSA data shows that the percentage of approved disability applications is roughly 30%. Most claims for benefits are approved at the initial stage of the application, with a small percentage of applicants receiving benefits after they file for reconsideration or receive a disability hearing. Currently, 8.2 million Americans receive an average of $ 1,277 a month on disability.
To be eligible for benefits, a person must:
- be insured against benefits
- be under full retirement age,
- applied for benefits, and
- have a social security disability.
Meeting the insurance requirement means that the person has to work long enough – and not so long ago – in the social security system. The number of work credits (coverage quarters) a person needs to be eligible for benefits depends on the person’s age when he or she becomes disabled.
Section 223 (d) (1) of the Social Security Act defines disability as:
(A) failure to engage in any significant income-generating activity due to any medically determined physical or mental disorder expected to result in death or which has lasted or is expected to continue for an uninterrupted period of at least 12 months, or
(B) in the case of a blind person who has reached 55 years of age (in the sense of blindness as defined in section 216 (i) (1)), the inability due to such blindness to exercise significant profitable activity requiring skills or abilities comparable to any income-generating activity that the person has previously engaged in with some regularity and for a significant period of time.
For example, if Joe Smith worked as a construction worker for 10 years and then tragically fell at 45, which left him tied to a wheelchair and unable to continue working in any position, he would be eligible for disability benefits.
It is possible that given the current “liberal winds”, the strict requirements for Americans to receive disability benefits will be reduced. Many may find it unfair to pay 12-14% of their income for a benefit package that prevents them from getting anything if they can do some low-skill sedentary work, such as a surveillance monitor or a Walmart greeting.
The stringent requirements force many people with disabilities who do not qualify to rely on plasma donations, collecting bottles, or using illegal means of supporting themselves to simply survive.
The August 19 announcement will provide much-needed help to hundreds of thousands of Americans with permanent disabilities as it saves social security recipients with disabilities from having to fill out a student loan forgiveness application, but how long the initiative will last and how many people it will affect is not yet clear.