Can My Part of a Spousal Consolidation Student Loan be Discharged Due to Disability?

Question:

Dear Steve,

I’m being denied a disability discharge even though I had an illness nine years ago that caused me brain damage. There is no dispute about my inability to work. The problem stems from a spousal consolidation data error.

Before I got sick, my husband and I got a spousal consolidation for which I’m jointly liable. That debt is only listed in the NSLDS under his name. Because the NSLDS shows my debt as zero, my loan holder & the Dept of Ed say I have no debt to discharge.

However, I’ve produced documentation to our loan holder, and to the Dept of Ed reflecting the portion of the debt that originated with each of us, but they won’t recognize the portion that is mine.

As a result, I can’t get a disability discharge or any other form of relief. The statutes and our consolidation contract both require my loan holder to discharge my portion of our debt based on my disability.

How do I get my discharge or any other forms of relief?

Lysa

Answer:

Dear Lysa,

Well thank you for a really tough question. I got to spend loads of time investigating this situation.

You are correct that apparently after the issuance of a spousal consolidation loan where two people are jointly responsible for debt and one person becomes disabled, their portion of the consolidation loan may be forgiven. At least that’s what documentation at the National Council of Higher Education Resources says.

The document states, “Section IV of the proposed Request Reimbursement Due to Partial Discharge of Consolidation Loan form requires information regarding the loan type and the disbursement date of the underlying loans only if the discharge is due to the total and permanent disability of one of two co-borrowers of a spousal Consolidation loan and only if the date of [disability] is prior to the consolidation. Why is this information requested if we are discharging a portion of the Consolidation loan?

The requested information is necessary to verify the borrower’s eligibility for discharge. The guarantor must verify that the total and permanent disability did not exist prior to the disbursement of the underlying loans since the provision states that the portion of the Consolidation loan that is eligible for discharge is “attributable to any of that borrower’s loans that would have been eligible for discharge.” The guarantor needs the disbursement dates of the applicable loans to verify that those loans would have been eligible for discharge [34 CFR 682.402(a)(2)]. This information is not needed if the date of the total and permanent disability is after the date of consolidation as it is evident that the total and permanent disability could not have occurred prior to the disbursement date(s) of the underlying loan(s).”

And the Department of Education provided the following slide in a presentation.

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This slide presents an interesting twist. Even though the disabled spouse may have their portion of the debt discharged, they will remain jointly liable for the remaining balance of the other spouse. How silly is that?

The Department of Education caught that little crazy rule and discussed it at one time. They said, “It doesn’t make sense that a borrower who is “unable to work and earn money” should remain obligated to repay the non-disabled borrower’s loan amount.” And they were right. It doesn’t make sense. But I could not locate any final version of the law that actually made the suggested change.

Regardless, the underlying issue here is not who was responsible for portions of the debt before the consolidation but who signed for the new loan. If your husband alone signed for the new loan than he alone would be responsible for the entire debt.

It seems seems NSDLS is reporting the loan under his name alone.

If you’d like to pursue the matter for clarification about who is actually responsible for the last consolidation loan, I would suggest you escalate the issue to the Federal Student Aid Ombudsman Group of the U.S. Department of Education. You have a legitimate question about who is actually responsible for the loan and feel NSDLS is in error.

Let me know what they say. Post an update in the comments section below.

Sincerely,

You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.