From the Washington Post: People who have been found disabled by Social Security were still obligated to repay student loans, but still face a financial quagmire. They are saddled with thousands of dollars in loans they struggle to repay. The Obama administration negotiated debt relief with the Department of Education, but the Treasury Department refuses thus far to give debt relief, treating the forgiven loans as income to be taxed.
The eligible disabled, who must be also designated “not expected to medically improve, are saddled with potentially thousands of dollars in taxes they also struggle to repay. And either situation leaves them vulnerable having Social Security benefits garnished.
The “tax bomb,” as some experts call it, gained attention this spring after the White House announced plans to forgive $7.7 billion in federal student loans held by nearly 400,000 permanently disabled people through a matching system. The Education Department and the Social Security Administration teamed to pinpoint borrowers receiving disability payments, under the specific designation of “Medical Improvement Not Expected,” which indicates they are eligible for the discharge.
Those identified received a letter from the government explaining the steps for loan cancellation and were not required to submit documentation of their eligibility, unlike disabled borrowers who apply for the discharge on their own. A vast majority of the people selected through the streamlined process are impoverished, living off of less than $16,000 a year — the federal poverty line for a family of two.
Eighty-four percent of the population identified by the Social Security Administration reported zero earnings in 2014, while the remainder pulled in an average of $8,000 a year. These borrowers, with no job prospects and minimal income, owe on average $18,000 in student loans. About half of them are in default, putting them at risk of having their Social Security disability benefits garnished.