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Lack of info, fear causing thousands of U.S. vets to default on student loans

By
Daniel Uria
A U.S. Army veteran salutes the American flag while riding in a parade in St. Louis on January 28, 2012. Photo by Bill Greenblatt/UPI
A U.S. Army veteran salutes the American flag while riding in a parade in St. Louis on January 28, 2012. Photo by Bill Greenblatt/UPI | License Photo

Nov. 20 (UPI) -- Earlier this year, tens of thousands of disabled U.S. veterans became eligible to have their student loans entirely forgiven -- but more than half are in default, new figures show.

In April, the Education Department and Veterans Administration announced they would identify disabled student loan borrowers eligible for forgiveness and total and permanent disability, or TPD, discharge.

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A Freedom of Information Act request filed by the nonprofit Veterans Education Success showed more than 25,000 of 42,000 disabled vets eligible for student loan forgiveness -- because of 100 percent disability or classified as Individually Unemployable -- were in default of $168 million in outstanding loans.

Further, only about one-fifth of those eligible borrowers had applied for forgiveness by May, the federal aid data showed.

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This month, a group of six veterans groups -- including Veterans Education Success and Vietnam Veterans of America -- sent Education Secretary Betsy DeVos a letter saying the paperwork required for forgiveness is dissuading some from taking advantage. The benefit should be automatic, it argues.

Obstacles for veterans

Experts say disabled vets eligible for forgiveness face a number of obstacles in applying.

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"They could be facing a lack of knowledge about the law in their particular state ... they could have serious health problems that are preventing them from filling out paperwork and getting it back to the department of education, there could be lots of reasons why they're unable to take advantage of this," Mike Saunders, director of military and consumer policy at Veterans Education Success, told UPI.

One of the main reasons vets groups say the process is unfair is because many live with "catastrophic disabilities" that make it challenging. Many paralyzed vets and those with severe brain injuries have a tough time completing the paperwork on their own.

Advocates also say despite the public announcement in April, a lot of the eligible veterans simply don't know they qualify to have their loans dismissed -- which is another argument, they say, for automatic forgiveness.

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Rick Weidman, executive director for policy and government affairs at Vietnam Veterans of America, said there "hasn't been any meaningful effort" by the Education Department to get the word out, and the VA has also been "derelict" on the issue.

"They've done a bad job -- or no job at all. It's a source of real irritation on our part because they're putting young people in a situation where they're strapped with this huge debt for no reason," he said.

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Weidman said the department should make more effort to notify vets, both electronically and by mail.

"In many cases they have people's email address and they don't use it, they have their home address and they don't use it to send out letters that say right up front, 'These options are available to you, explore them by clicking on the links provided.'"

The Education Department, though, says all veteran borrowers receive multiple notifications and are strongly encouraged to make sure their federal student loan servicer has their most up-to-date contact information.

The argument against automatic forgiveness

The Education Department opposes automatic forgiveness because, in some states, forgiving the debts would result in tax penalties for vets.

"The Department recognizes the sacrifices veterans and their families have made for our country, which is why we've streamlined the TPD discharge process through the data matching process with the VA," Education spokeswoman Liz Hill said in a statement to UPI.

"The last thing we want to do is cause unintended consequences -- like impact future federal student aid or create a state or local tax liability -- for men and women who have given so much."

The IRS used to consider canceled student loans taxable income -- but the newly-amended tax code now includes a waiver for federal taxes on forgiven education debt for the disabled.

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Saunders said the letters sent to veterans about loan forgiveness mention the possible tax repercussions -- which may also be discouraging them from applying.

"If you're an average person getting this letter, you're not a tax lawyer, you might night even know where to go, where to look for that information," he said. "It's my belief that a lot of people are reticent for applying for something when they could potentially be signing themselves up for a tax burden that they can't afford."

Vets groups say 40 states follow federal guidelines on taxing loan discharges -- meaning 80 percent of vets would face no unexpected taxes. The groups say they've advised the Education Department to facilitate automatic forgiveness by offering those who live in the other 10 states the opportunity to opt out.

Tips for applying

In his role with Veterans Education Success, Saunders compiled an advice column guiding veterans through the process. One issue he found is that some vets aren't even reading the notifications from the Education Department -- fearing they may be scams, which are rampant in the veteran community.

To help, Saunders gives vets a sample letter and says the official letters will clearly state they're from the department or Nelnet, the servicer that administers the forgiveness process.

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"If you get a letter from someone else, beware because it could be a scam," he said.

The department and Nelnet manage a website, disabilitydischarge.com, which provides vets with resources and information to file applications online for free. Saunders warns that vets should beware any services that charge to help vets with the process.

"Once the Department of Education receives your application, they will instruct the bank or other loan holder to suspend collection activity on your current student loans for 120 days while your application is being reviewed to determine if you qualify for student loan forgiveness," he said.

Veterans who are eligible but have not received a letter should be aware the department will work with the VA to conduct a new match of veterans with severe disabilities with the student loan database to identify more borrowers that may be eligible.

"It's just a crushing weight on you that you're unable to get out from underneath of," Saunders said of the burden some vets face with unpaid loans. "Being in default of your student loans is a detriment in so many areas of your life.

"If folks have raised their hands to serve our country the government should do just a little bit more to help these people."

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