The most-noted change to the student loan rules that went into effect on November 1 of this year was to the Income-Based Repayment option for federal student loans. The changes will undoubtedly benefit many student debtors with lower monthly payments than before. The change to the federal code also touched on another subject: debts owed by people on Social Security Disability Insurance.
Until recently, people who were on Social Security for disability reasons and owed student loans generated by the Federal Family Education Loan Program (FFELP) or the Direct Loan Program had a difficult task of proving to the Department of Education that they were “totally and permanently disabled” (TPD) to receive a hardship discharge. It was possible that the Social Security Administration’s (SSA’s) word was not enough to convince the Department of Education, which could conclude on its own that the debtor was not disabled, the result being Social Security garnishments to pay for the student loans.
Starting July 1, 2013, the rules will change to streamline the process debtors must use to show they are entitled to a hardship discharge. In particular, they can now submit the “notice of award” the SSA sends them to the Department of Education so long as the SSA reviewed the debtor’s TPD status every five to seven years. The hope is that going forward there will be no inconsistent rulings from two government agencies as to whether debtors are TPD.
Although there isn’t a catch, it should be noted that the hardship discharge process isn’t absolute. In other words, debtors can’t send their notices from the SSA to the Department of Education and expect to walk away from their loans. As before, debtors seeking a hardship discharge will have their cases monitored by the Department of Education for the three subsequent years to ensure they are still TPD. Debtors are also obligated to inform the Department of Education if before the three-year review the SSA determines they are no longer TPD and are thus able to work.
The rules discussed here are not bankruptcy law but are internal rules for the Department of Education. As a result, the meaning of “hardship” in “hardship discharge” may differ substantively from the “hardship” in “undue hardship” required to demonstrate to a bankruptcy court that the student loan should be discharged in a Chapter 7 bankruptcy or after the conclusion of a Chapter 13 repayment plan.
For more questions about student loans, hardship discharges, student loans in bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Business Bankruptcy Lawyer Bruce Weiner for a free initial consultation.
