July 14, 2020
College Debt Boosts Disability Requests
During the steel and coal busts of the 1980s, applications for federal disability benefits rose in areas where these industries had laid off workers. Now there’s a 21st century reason to apply: student loans.
College debt is extremely difficult to discharge in the bankruptcy courts. But the U.S. Department of Education in 2013 opened a new avenue for potentially eliminating federal student loan debt. Former college students whose disabilities are severe enough to qualify them for disability benefits can then apply to the Department of Education for loan forgiveness.
Since 2015, the typical person approved for the program has eliminated $17,500 in college loans.
The prospect of discharging the onerous debt created a powerful financial incentive. After the program began, the probability that an individual with student loans would apply for disability with the U.S. Social Security Administration was much higher than for individuals with no loans, a new study found. The increase in applications was largely from people who had not earned any money the previous year and may have had few options for paying their debt.
The older workers who took out student loans – sometimes on behalf of their children – may be “aching to retire” anyway, the researchers said, and receiving disability and loan forgiveness would accomplish that. But the younger people who applied may simply have been motivated by a desire to discharge their college debts.
However, seeking disability benefits as a strategy for eliminating the debt didn’t work very well. …Learn More