Personal Finance

Democrats Introduce Bill To Discharge Private Student Loans For Borrowers And Cosigners Due To Disability

House Democrats today introduced a bill that would allow disabled borrowers to fully discharge their private student loans.

The bill, the Private Loan Disability Discharge Act (H.R. 2498), would require private student loan lenders to discharge the loan balance for both the student loan borrower and any co-signer if the borrower becomes totally and permanently disabled.

Currently, there is a federal Total and Permanent Disability (TPD) discharge program that allows borrowers to discharge their federal student loans on the basis of a medical impairment. But there is no such program for private student loan borrowers. Some private lenders do offer a disability discharge in certain circumstances, but such programs are discretionary, and availability of these private student loan disability discharge options is uneven at best. Furthermore, even when these programs are offered and a discharge is granted, the cosigner may still be responsible for repaying the student loan, even if the borrower is released from their obligation.

“A constituent brought this issue to our attention… her daughter had become totally disabled and she was left with the remaining balance of her private student loans as the cosigner, ” said Rep. Madeleine Dean (PA-04), who sponsored the bill, in a statement. “The lending company said they would forgive the loan for the borrower, but not for the cosigner – so we wrote H.R. 2498 to address this unfair practice, and to ensure student loan borrowers are protected in the case of these terrible circumstances.”

The new bill comes amidst increasing attention to student loan discharges for disabled student loan borrowers. Yesterday, student loan advocacy organizations filed a formal petition calling on the Biden administration to grant automatic student loan forgiveness to hundreds of thousands of disabled borrowers who may be entitled to a discharge of their federal student loans under the Total and Permanent Disability (TPD) discharge program, but may not even realize that they qualify. The organizations have urged the U.S. Department of Education to automatically cancel these borrowers’ federal student loans, without requiring them to affirmatively apply, given that the Social Security Administration has already shared sufficient information with Department officials regarding eligible disabled borrowers.

Last month, the Biden administration announced that it would be rolling back paperwork requirements for the federal TPD discharge program by temporarily waiving borrowers’ obligations during the so-called post-discharge monitoring period, which lasts for three years. To keep their forgiven student loans in a discharged status, most TPD borrowers must submit ongoing annual paperwork following discharge approval to certify their disabled status and employment earnings (if any). Failure to respond can result in a reversal of the discharge and reinstatement of the student loans. The vast majority of student loan disability discharges that get reversed are due to a disabled borrower’s failure to respond to monitoring requests and submit the required paperwork. The Biden administration’s waiver of the TPD post-discharge monitoring requirement will be retroactive to March of 2020, when the COVID-19 pandemic emergency was first declared, and will continue until the emergency is over.

Further Reading

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Key Moments From Elizabeth Warren’s Blockbuster Hearing On Student Loans

4 Key Questions About Biden’s Student Loan Forgiveness Review

Biden To Initiate Additional Student Loan Relief This Week — But Borrowers Demand Full Cancellation

72,000 Borrowers Will Get $1 Billion In Student Loan Forgiveness – Do You Qualify?

Is $10,000 In Student Loan Forgiveness Next, After Biden Administration Cancels $1 Billion?

Senate Passes Stimulus Bill With Student Loan Tax Relief — Will It “Pave The Way” To Cancel Student Debt?

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Whether Biden Cancels Student Debt Will Depend On These 3 Things

Could These Student Loan Borrowers Be Excluded From Biden’s Forgiveness?

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