Taxpayers could get stuck with $7.8 billion student loan bill

Nearly 400,000 student loan holders received letters from the U.S. Department of Education this week informing them that their loans may be eligible for complete forgiveness.

Worth a total of $7.8 billion, the loans belong to borrowers who have been deemed permanently disabled and unable to work and who currently receive income supplements through the federal Supplemental Security Income (SSI) or the Social Security Disability Insurance (SSDI) programs. If borrowers take advantage of the federal program, their entire student-debt load can be forgiven—a boon in particular to the 179,000 of those loan holders who are in default and facing garnishment of their SSI and SSDI payments.

The debt forgiveness program itself is not a new initiative, but government officials concede the existing application process is cumbersome and inefficient. One example cited by Undersecretary of Education Ted Mitchell described a woman suffering from a permanent disability related to breast-cancer treatments. Her application met with repeated roadblocks; it ultimately took seven years to discharge her debt.

“That’s not how government should work,” Mitchell said. “These are people who are struggling with health issues. We want to take one worry off their plate.”

Disability rights advocates applauded the announcement.

“This matching program is critical to help student loan borrowers get the relief they are entitled to,” said Persis Yu, a project director at the National Consumer Law Center. “Many Social Security Disability recipients qualify for loan cancellation, yet most do not know about the discharge program.”

Both the SSI and SSDI programs have come under fire in recent years for their swelling ranks as well as reports portraying both programs as rife with fraud and abuse.

Close to 9 million individuals receive SSDI benefits alone, up from 6.5 million just 10 years ago. Some of that increase can be attributed to a wave of aging baby boomers, but much of it also arises from the expanding instances of applicants citing difficult-to-quantify health maladies. According to a paper published by the Center for American Progress and the Brookings Institution, applications for traditional medical causes of disability such as cancer, stroke, or heart attacks have stayed relatively constant in recent years. But the ranks of SSDI beneficiaries have exploded for people with musculoskeletal (e.g., back pain) and mental disorders.

Critics are quick to point out that many of the disorders in those two categories often rely on applicants’ self-reporting their symptoms and largely subjective analyses by medical professionals.

The Social Security Administration states on its website that it actively and aggressively works to expose fraud and encourages individuals to report suspected abuses. Those abuses include a “blind” Wisconsin man who was seen driving to work, a Texas gravedigger whose reported back injury left him unable to work yet was seen digging graves and setting up chairs and tents for funeral services, and a California psychologist who received more than $80,000 in SSDI payments while operating his own private practice and earning more than $1 million annually.

With no apparent mechanism in place to reliably vet the student loan holders’ legitimate benefits from those that are likely fraudulent, taxpayers could be on the hook for the entire $7.8 billion.

The Associated Press contributed to this report.