Thousands of veterans should be eligible to have their student loans completely discharged with no tax liability — if only they knew about the program and applied.
For years, two government agencies — the VA and the Department of Education — have had the power to identify these individuals. The VA had the list of veterans who either had a service-connected disability that is 100% disabling, or were totally disabled based on an individual unemployability rating. Meanwhile, the Department of Education had the list of Americans who had taken out federal student loans through the National Student Loan Data System (NSLDS).
Cross-matching these lists would identify veterans who would be granted a Total and Permanent Disability Discharge if only they applied. Efforts in 2016 to produce a similar list of individuals receiving social security disability who had student loans identified more than one hundred thousand such people.
Seems like a no-brainer that should have happened years ago, right? Well, in a press release, the VA and the Department of Education finally announced that they would be teaming up to find these veterans and let them know about the benefits they are entitled to.
However, currently the plan is just to notify these borrowers. In my experience, merely notifying borrowers will not be enough. For a variety of reasons, the information may slip through the cracks or the veteran may not have the resources to follow up on it.
A bipartisan group of senators have recently advocated for an automatic discharge that would require no follow-up by the borrower. This proposal is particularly compelling now that the 2018 tax bill eliminated the tax on disabled borrowers who had their forgiven student loan debt.
With this loophole gone, there is no downside to automatically discharging student loan debt for disabled veterans — except that the Department of Education will not get the marginal amount of money that these veterans continue to pay while they remain unaware they could have the loans discharged.
The announcement by the Department of Education and the VA is a step in the right direction, but it does not go far enough.