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Federal Register / Vol. 86, No. 160 / Monday, August 23, 2021 / Rules and Regulations approximately $650 million in discharges under the opt-in process in effect prior to the IFR. However, thousands more have not applied for the discharge for which they were eligible.
A similar match has been in place with the Social Security Administration since 2016 and approximately 141,000
borrowers have received $8.2 billion in discharges under the opt-in process for the period 20162021. While veterans do not have to complete a postdischarge monitoring period, other borrowers who receive a TPD discharge are subject to a three-year post-discharge monitoring period during which a loan discharge could be reversed, so the final number of discharges associated with SSA matches from 20162021 may shift somewhat.
The amendments in the IFR and these final regulations provide a quicker, more efficient process and will likely result in many more qualified veterans and individuals SSA determined to have a qualifying disability status receiving the discharge for which they are eligible.
In the past, loan discharge amounts were subject to Federal and, in some States, State tax, which may have dissuaded some veterans or other borrowers who could otherwise navigate the TPD application process from seeking a discharge. However, under the Tax Cuts and Jobs Act of 2017 Pub. L.
11597, all Federal tax was eliminated on loan discharges of borrowers based on death or total and permanent disability through 2025. Some small percentage of these eligible veterans or other borrowers may opt out due to concerns over State tax treatment that was not affected by the 2017 Federal law.
In addition, borrowers who are enrolled in a postsecondary institution at the time of the disability determination, or who plan to enroll in the future, may opt to forego loan forgiveness through TPD discharge so that they can continue to receive new Federal student loans for such enrollments. Although a borrower who accepts loan forgiveness through TPD
discharge may still be able to borrow in the future, the Department requires such a borrower to obtain a certification from a physician that the borrower is able to engage in substantial gainful employment and to sign a statement acknowledging that the new Direct Loan the borrower receives cannot be discharged in the future on the basis of any impairment present when the new loan is made, unless that impairment substantially deteriorates. In addition, borrowers who want to receive new loans after receiving a TPD discharge
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based on SSA documentation or based on a physicians certification are also required under 674.61b6, 682.402c4 and 5, and 685.213b6
and 7 to resume payment on the discharged loans if they receive a new loan during the three-year postdischarge monitoring period.
Some borrowers may elect to simply forego loan forgiveness to preserve future borrowing opportunities and avoid the need to obtain medical certification regarding their ability to engage in substantial gainful employment. Although borrowers could opt out of an automatic discharge before we issued the IFR, that option was not specified in the regulations. Currently, the opt-out rate for veterans is low, at four percent approximately 2,100
borrowers of nearly 48,000 opted out from the two rounds of discharges processed since September 2019.
Accordingly, the Department expects a small percentage of borrowers who qualify for an automatic discharge based on SSA data to choose to opt out of the discharge.
Nevertheless, this final rule removes barriers and allows many more qualified veterans and other borrowers to receive the TPD discharge to which they are entitled.
Costs, Benefits, and Transfers The primary parties affected by the IFR and these final regulations will be the veterans and recipients of Social Security benefits who qualify for the discharge; and the taxpayers, through the transfers from the Federal government. Qualifying borrowers will be relieved of a financial burden related to Federal student loans, including the stress associated with repayment or potential defaults and collections.
VA estimates that approximately 150,000 veterans a year will reach a qualifying disability rating over the next 10 years, of which approximately 18
percent will be 50 years old or under and approximately 20 percent will have at least some postsecondary education at the time of their separation from the armed services. Many more will likely use education benefits and loans to pursue postsecondary credentials after separation. Therefore, we expect that thousands of current and future veterans will be affected by these final regulations.
The match with the Social Security Administration is for individuals with Social Security Disability Insurance SSDI or Supplemental Security Income SSI benefits indicating that the borrowers next scheduled disability review will occur in no less than five and no more than seven years. The
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number of borrowers eligible for a discharge depends on the age profile, student loan borrowing history, and repayment history of those with a qualifying disability status. The Department estimates that approximately 21,000 borrowers are newly identified through the SSA match on a quarterly basis, and the quarterly average of borrowers who apply for a discharge and successfully complete the monitoring period is just over 10,000.
This is based on borrowers from existing loan cohorts who have already received a qualifying disability status. More borrowers from past loan cohorts could qualify for a disability status in future years, and future cohorts of borrowers will also be affected by these final regulations, so many thousands of borrowers from existing loan cohorts and those in the 10-year budget window will benefit from the opt-out process.
As described in the Paperwork Reduction Act section of this preamble, the elimination of the application will reduce the burden on borrowers who qualify for the automatic TPD discharge.
The elimination of the application is a reduction in burden of 5,000 hours and $140,900 for veterans and 11,586 hours and $326,493 for other borrowers, calculated at a wage rate of $28.18.1
The increase in transfers for discharges will affect taxpayers, through the Federal government, as more borrowers receive the loan discharge for which they qualify. This effect is described in the Net Budget Impacts section of this Regulatory Impact Analysis. Estimated annualized transfers are $1,685.8 million at a 7
percent discount rate. The servicing contractor that processes disability discharges for the Department could see an increase in the number of discharges to process, which could require system upgrades or other resources. However, they have already adjusted to an opt-out process for veterans and manage the notifications for eligible borrowers identified through the match with the SSA, so we do not expect significant changes would be required.
Additionally, the Department is required to pay the cost of SSA
providing Medical Improvement Not Expected status as part of the match agreement. This is estimated to cost approximately $8,000 annually, but this cost would be incurred whether or not the results of the match were used for 1 Bureau of Labor Statistics, Economic News Release Table B3. Average hourly and weekly earnings of all employees on private nonfarm payrolls by industry sector, seasonally adjusted.
Applying average hourly wage rate for October 2019
for total private industry. Available at www.bls.gov/
news.release/empsit.t19.htm.

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