Does Student Loan Forgiveness Affect Disability Insurance Application?

Student loan debt is rising in the US, with total debt now in excess of $1.3 trillion and nearly one in five borrowers leaving school with over $50,000 of debt. Individuals experiencing a career-ending disability are likely to experience difficulty in repaying their student loans due to the loss of earnings. The Department of Education's Total and Permanent Disability Discharge (TPDD) program allows for the discharge of federal student loan debt for disabled individuals.

Prior to 2013, obtaining a discharge through the TPDD program required a certification by a licensed physician that the individual was unable to engage in substantial gainful activity due to a physical or mental impairment expected to last at least 60 months or to result in death; some veterans receiving disability compensation benefits were also eligible for discharge. Starting in 2013, the TPDD program was expanded to include those individuals receiving Social Security Disability Insurance (SSDI) benefits or Supplemental Security Income (SSI) benefits who had a "medical improvement not expected" determination.

In theory, the prior allowance for a physician's certification is the same criterion as that used by the Social Security Administration (SSA) in this disability determination of "medical improvement not expected": an inability to perform substantial gainful activity expected to last at least 60 months. However, the ability to use the SSA determination process to satisfy the TPDD documentation requirements reduces the cost of applying for TPDD for existing SSDI/SSI recipients and increases the benefit of SSDI or SSI participation for current non-recipients. In addition, the expansion of TPDD criteria was widely publicized, raising awareness of TPDD as a pathway to student loan discharge.

In Does Student Loan Forgiveness Drive Disability Application? (NBER RDRC Paper 19-18), researchers Philip Armour and Melanie Zaber explore how this policy change affected SSDI and SSI applications and awards.

The authors' empirical approach compares the probability of applying for SSDI or SSI among those with student loan debt before and after the policy change, using individuals without student loan debt to control for any other time-specific factors affecting disability applications. The analysis makes use of Survey of Income and Program Participation (SIPP) data linked to SSA Form 831 records of SSDI and SSI applications.

The authors find that there is a 46 percent increase in the probability of applying to SSDI or SSI in each quarter after the policy change among those who have student loan debt. This effect is even larger among those with some college or greater educational attainment, consistent with the higher level of student loan debt in this group.

In theory, an increase in applications may not necessarily translate into an increase in awards, depending on whether induced applicants satisfy the criteria for SSDI or SSI receipt. In fact, the authors find that the proportional increase in SSDI awards induced by the policy change is larger than the proportional increase in SSDI applications. That is, these induced applicants were more likely to be awarded benefits than the average applicant, suggesting that the targeting efficiency of the program increased.

A final question is whether the policy change led to more discharges of student loan debt. SSDI recipients are eligible for debt discharge only if their award results in a permanent disability classification satisfying the "medical improvement not expected" categorization. The authors find a large and significant increase in non-permanent disability awards but fail to find a statistically significant increase in permanent disability awards. New applicants and awardees, now aware of TPDD, may still use the physician certification route to discharge student loan debt; however, the authors were not able to explore this possibility using their data.

Referring to the 2013 expansion of the TPDD program to include permanently disabled SSDI and SSI recipients, the authors note, "our analyses show that this expansion led to a substantial increase in applications to SSDI among those with student loan indebtedness, and these applicants were disproportionately likely to be accepted onto the program, implying that these induced applications improved the targeting efficiency of SSDI. However, the increase in awards was not driven by an increase in permanent disability awards: these new SSDI recipients were generally not eligible for TPDD discharge through the SSA pathway, as they were determined to have shorter-termed disabilities."

The research reported herein was performed pursuant to grant #RDR18000003 from the US Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of NBER, SSA or any agency of the Federal Government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.