Thousands of disabled veterans are still stuck repaying their student debt
The U.S. Department of Education continues to seek repayment on more than $1 billion in federal student loans from tens of thousands of severely disabled veterans who have been deemed unable to work and are eligible for student loan forgiveness.
The news comes out of a Freedom of Information Act request filed by Veterans Education Success, a nonprofit that provides free services to veterans, back in June that was answered around Veteran’s Day.
In response to the advocacy group’s request, the Education Department says it has identified more than 40,000 service members who qualify to have their student debt canceled through what is called a “total and permanent disability discharge.”
More than 25,000 of them are in default, however, and just 8,500 have even applied for the forgiveness. The government did not say it has discharged any of the debts of these eligible veterans.
“It’s disturbing,” said David Bergeron, a former Education Department official. “The current leadership has hired people who want to protect for-profit institutions more than they want to protect students and veterans.”
For-profit schools have come under scrutiny for targeting veterans, and military students are more likely to attend the colleges compared with civilians.
The Education Department did not respond to a request for comment.
More from Personal Finance
These are the ways student loans stop people from buying a house
Student loan nightmare: Some borrowers have to start over
People with massive student debt hope Trump will let them declare bankruptcy
Defaulting on student loans can be financially devastating for anyone, let alone disabled veterans often living in poverty and unable to work. It results in lowers credit scores and allows the government to garnish borrowers’ tax refunds as well as a portion of their Social Security benefits.
Consumer advocacy groups, including Veterans Education Success and Vietnam Veterans of America, are now urging the Education Department to automatically discharge the debt of these individuals. Currently, they must apply to have their debt canceled.
Earlier this year, the Education Department attempted to make this process easier by sending out a letter to certain disabled veterans notifying them of their eligibility for loan discharge.
However, advocates say many of these veterans may be unable to respond because they’re paralyzed or have severe brain injuries. Others may have never even opened the letter or believed it was a scam, since borrowers are frequently warned to stay away from claims of loan forgiveness.
The Education Department has argued that it can’t automatically discharge student debt of disabled veterans because it would trigger a tax bill for the borrower.
The IRS used to consider such canceled debt as taxable income. However, a provision in the new tax code waives federal income taxes on forgiven education debt for disabled individuals.
Now the Education Department says it can’t automatically discharge the debt because of potential state tax implications.
Yet Mark Kantrowitz, a student loan expert, said this was just a new excuse. “Very few states, if any, would include the discharge of student loans in income,” he said.
If you’re a disabled veteran with student debt:
• The Education Department and the Department of Veteran Affairs have worked together to identify veterans eligible for student debt cancellation.
• The letter notifying you of your eligibility comes from student loan servicer Nelnet as well as the Department of Education. Here’s what it looks like.
• If you haven’t received the letter, the Education Department walks you through how to apply for forgiveness at disabilitydischarge.com.
• Ignore any services claiming they can help you to get your student loans forgiven for a fee, as they are scams, says Veterans Education Success. Instead, the organization provides free assistance. Email: Help@VeteransEducationSuccess.Org