Credit card debt forgiveness for disabled veterans

President Trump signed an executive order today calling for more streamlined discharges of federal student loans for disabled veterans who cannot maintain employment to repay their debts. The President noted in the order, "There is a pressing need to quickly and effectively resolve this problem [of disabled veterans carrying student loan debt].  Therefore, my Administration will take prompt action to ensure that all totally and permanently disabled veterans are able to obtain, with minimal burden, the Federal student loan debt discharges to which they are legally entitled."

Some media outlets and administration officials are mischaracterizing the order as a new student loan forgiveness program for disabled veterans. It is not.

Pursuant to the Total Permanent Disability (TPD) discharge program, veterans who are totally and permanently disabled due to a service-related condition are eligible to have their federal student loan debt completely cancelled, tax-free. Today's executive order does not create a new student loan forgiveness program; rather, it directs the U.S. Dept. of Education and U.S. Dept. of Veteran's Affairs to streamline the TPD discharge process.

The effort to improve the TPD discharge process for disabled veterans is laudable and important. The V.A. already has information on veterans who have been certified as completely disabled, and there is no reason that the agency cannot share this information with the Dept. of Education. This is particularly important since many disabled student loan borrowers -- veterans and non-veterans alike -- are never informed that the TPD discharge even exists, and the application can be confusing and cumbersome.

The Dept. of Education already had announced a process to identify disabled student loan borrowers eligible for a TPD discharge via the Social Security Administration in 2016. Furthermore, in April 2018, the Dept. of Education made a formal announcement that it was expanding its disability identification system to include the U.S. Dept. of Veteran's Affairs.

The President's executive order creates a new process where the Dept. of Education will automatically identify veterans eligible for loan forgiveness via the TPD discharge program, and will give them the option to opt out for 60 days before discharging the debt automatically. Consumer advocates have, for years, been calling on the federal government to automatically discharge federal student loans for both Social Security disability benefit recipients and veterans certified as fully disabled. This is an important development for disabled student loan borrowers.

Ultimately, however, the executive order does not create a new loan forgiveness or discharge program. And as for the expedited process, since the order leaves it to the Dept. of Education and Dept. of Veteran's Affairs to further streamline the TPD discharge process and implement the order, it will be up to those agencies to make the desired improvements. 

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Gennitha McLeod is a veteran who now works as a nurse practitioner in Anniston, Alabama. She paid off $70,000 in debt in three years and hopes to open her own clinic.

Gennitha McLeod

When Gennitha McLeod left the military in 2010, she wasn't sure how to use her veterans benefits or manage her money.

She'd been affiliated with the military since she was 19, first as a military spouse and later during a four-year stint in the service as a private first class.

After years of bad financial habits, paying for surgery, going back to school and raising six children, she found herself with more than $110,000 in debt.

"I got tired of being in debt, tired of the rat race, tired of making payments" she said. McLeod, 41, who is now a nurse practitioner, realized that she needed to pay off the debt before she could seriously work on her next goal of opening her own clinic in Anniston, Alabama.

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She knew she needed help, so looked for services that worked with veterans. Eventually, she found Money Management International, a nonprofit credit counseling and debt management company that has services specifically for veterans. She decided it was a good fit and worked with the company on about $70,000 of her debt.

She paid it off in three years, while simultaneously working on the other $40,000 in debt she carried. Today, she's down to the last $2,400, with the goal of being debt-free by the end of the year.

"It really gave me a different perspective on what a dollar means," she said.

Veterans and debt

Veteran families grapple with financial wellness — about 50% have less than $500 in emergency savings, or have no emergency fund at all, according to a 2019 survey from the Military Family Advisory Network.

At the same time, nearly 80% of military and veteran families said that they carried debt, with the highest balances being homes, credit cards and vehicles.

Transitioning from being in the military to civilian life can be especially difficult for families and lead to debt.

"In the military, all of the things having a major financial component are pretty well handled," said Tara Alderete, director of enterprise learning at Money Management International, adding that when this support is gone, veterans sometimes struggle to manage their money.

Having debt brings with it a lot of financial stress for veteran and military families. Some 30% said that financial stress was detrimental to both their mental and emotional health, while about 14% said it was damaging to their relationships.

"Layer that with regular mental health issues that military folks are facing, and it is extremely overwhelming," said Alderete.

Debt management

For those who feel in over their heads with the amount of debt they have, seeking help such as a certified financial planner, a financial coach, advisor or a debt counselor can be a huge benefit.

Debt management services especially help mitigate the repayment process and work with individuals to lower interest rates on their loans, potentially saving them thousands of dollars over time.

Over the three years that many veterans work with Money Management International, some save well over $10,000 by having lower interest rates on debts, according to the company.

The ease of consolidating multiple debts into one payment is also helpful for some, as it makes the repayment process much simpler.

Other ways to pay off debt

Of course, working with a debt management company means that you'll pay a fee to the firm for its help in consolidating what you owe and negotiating rates with your creditors. For example, Money Management International charges a monthly fee to clients, which is calculated before they sign up to work with the company.

It is also possible to manage your debt on your own, and negotiate lower interest rates with creditors. Many people use strategies such as the avalanche or snowball methods, and are able to successfully get out of debt without any paid help.

Of course, repaying debt on your own can require a certain level of financially savvy and discipline. Some may prefer to have extra help along the way.

For Sandy Wilsnach, 52, the $50 monthly fee she paid to work with Money Management International was well worth it, given the amount of money her family ultimately saved. Working through the process with professional help also meant they got a crash course in personal finances and learned how to better manage their money going forward.

Sandy Wilsnach, left, and her husband. The couple just bought a new home after paying off $37,000 in debt.

Sandy Wilsnach

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