Student loan process a chore for disabled
U.S. Department of Education makes forgiving debts difficult for many
This story was originally published by ProPublica.
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After suffering from panic attacks and episodes of psychosis, Donita McDonald was diagnosed with a severe mental illness in 2009.
She was unable to work or attend school, so the Social Security Administration declared the 21-year-old disabled. After the ruling, McDonald's family turned to the Department of Education, appealing to also have her thousands of dollars in student loans forgiven. The department is supposed to forgive the loans of former students who develop severe and lasting disabilities, such as McDonald.
But rather than accept the Social Security Administration's ruling, the Education Department has forced McDonald to go through a separate, arduous and largely duplicative review that has left her facing continuous collection efforts, even though she is unable to handle her own finances.
McDonald's experience is far from unique.
As ProPublica, The Chronicle of Higher Education and the Center for Public Integrity detailed in an article in February, the department's dysfunctional process for evaluating disability is keeping many genuinely disabled applicants in debt. Internal reports by the department's own ombudsman found that the program has suffered from "fundamental deficiencies" including "no written medical standards for determining disability," "no formal appeals process" for denials and "undue burden and costs" on borrowers.
Following the article, the government acknowledged the shortcomings and said it was considering making a fundamental fix that experts say would both cut spending and help borrowers in need. Instead of requiring all borrowers to go through the Education Department's cumbersome, opaque and often redundant system, the agency could accept disability findings from Social Security and other federal agencies.
But now nearly six months later, the department says it can't and won't do it.
The Education Department said it was still making good on a pledge to write new regulations for the program and that the resulting reforms would be substantial. It said it was focused on streamlining its system, for example by eliminating the initial reviews by loan holders and guarantors that many borrowers must undergo.
The new rules should create "a process that will result in superior treatment for borrowers even when compared to the best practices of any other federal agency," said David Bergeron, of the department's Office of Postsecondary Education.
But experts say the department is shelving the most significant potential change—accepting Social Security decisions—before the process of writing the new rules even begins.
"It seems like there will mostly be small incremental improvements with none of the major changes that are really necessary," said Mark Kantrowitz, an author and consultant on student financial aid.
No way forward?
Deanne Loonin, an attorney with the National Consumer Law Center and the director of its Student Loan Borrower Assistance program, estimated that fully two-thirds of her clients who apply for loan discharges to the Education Department already have Social Security determinations. Loonin said accepting those decisions "would be the most important change by far" for her clients.
Before February, the department had maintained that it could not accept disability findings by other agencies without new legislation by Congress. It had said that Social Security designations, which are for temporary disability benefits, are far different than the standard of "total and permanent disability" required for forgiving a student debt.
Experts disputed that interpretation, saying legislation passed by Congress in 2008 opened the door for the Department of Education to accept certain Social Security rulings. And the department eventually appeared to agree, saying in February it believed it had the authority to write new rules that would allow it to accept disability findings by other agencies, as long as their standards paralleled its own.
It said a department working group was considering the "promising option" of accepting Social Security findings as part of the new rules it would write for the disability discharge program.
"This system must work better for borrowers that become totally and permanently disabled," said Justin Hamilton, a spokesman for the Education Department.
Now the department says it simply cannot find a way to accept other agencies' disability findings while obeying the guidelines set out by Congress.
When asked what part of the statute constrained them, Bergeron, the department official, cited its requirement that borrowers must be unable to work because of "a medically determinable physical or mental impairment that can be expected to result in death."
"We just can't find a comparable determination that the Social Security Administration or other agencies are making to the one we're making," Bergeron said.
Yet the revisions by Congress from 2008 state that discharges should also be granted for disabilities expected to cause at least five years of being "unable to engage in any substantial gainful activity"—the same standard and time period that is used by Social Security to designate disabilities that aren't expected to improve.
Kantrowitz, the student-aid expert, said that with the new standards established by Congress, the Education Department has the power to accept Social Security designations and should use it. "If an individual has one of those statuses, why not short-circuit the process since the two are equivalent?" he said.
The Education Department is still planning on writing new rules, a process that began with public meetings in May. The content of the rules will be hashed out in negotiating sessions between department officials and representatives of colleges, student-loan companies and borrower advocates.
Bergeron said the sessions will probably begin in October and last three or four months. He said the department was open to considering alternative approaches presented during the negotiations.
But following the department's recent about-face on the question of whether it can accept other agencies' disability findings, experts are skeptical that the new regulations will substantially change the program. However significant the obstacles to accepting these determinations may be, experts say the reforms now on the table will not be able to fix the program's principal shortcomings.
Loonin, the attorney for borrowers, said "it would just be procedural changes" if accepting Social Security designations is not considered at the negotiated rule-making. "We would be very disappointed," she said.
While the Education Department considers reforms, borrowers like Donita McDonald and her mother, Deborah, have still faced harassment from debt collectors, even as the family struggles to manage Donita's disability.
Two areas the department indicated in February that it planned to reform—its refusal to accept Social Security determinations, and problems with its process for proving financial hardship—have been sources of particular frustration for the McDonalds.
In the fall of 2006, Donita started her freshman year of college. But she soon began experiencing severe bouts of anxiety and visited the school's mental health services. The panic attacks turned out to be early signs of a serious mental illness. In her sophomore year, she suffered a psychotic break and had to be hospitalized and withdraw from college.
In 2009, Social Security found that Donita was fully disabled and incapable of working. McDonald's mother, Deborah, assumed power of attorney to handle Donita's finances, which included paying off her daughter's roughly $24,000 in student loans.
In 2010 she applied to the Education Department to forgive her daughter's loans on the grounds of her disability. Since the department does not accept Social Security's findings, Donita had to undergo another medical review, and Deborah had to submit applications to each of Donita's loan holders.
"I have to show over and over that she's not capable, which is personally painful," Deborah McDonald said.
Most of McDonald's loans are under review, and the payments have been suspended. But McDonald has still had to deal with about $7,900 in government-backed Stafford loans. This May she started getting collection letters and daily phone calls about these loans from her loan servicer, Sallie Mae.
The most troubling incident for McDonald occurred in June, after she applied to Sallie Mae for forbearance due to economic hardship. Sallie Mae responded with a letter that said a "forbearance request form" was enclosed.
But the enclosed form was actually an automatic debit authorization form, which would have authorized Sallie Mae to deduct payments from Donita's bank account. And instead of sending the form to Deborah McDonald, Sallie Mae sent it directly to Donita.
"Basically they bait and switched," Deborah McDonald said. "My daughter's not able to make that determination."
"To me it's almost illegal, it's so misleading."
When contacted by ProPublica about Ms. McDonald's case, Sallie Mae's director of customer advocacy, Amanda Holt, personally looked into the situation. McDonald's discharge application was approved within two business days—ending the collections efforts by Sallie Mae—and sent on to the Education Department for a review. "This has been a unique and unfortunate case of miscommunication," Holt said.
McDonald is now in limbo until a final review by the government determines if her debt can be wiped off the books.
The department declined to comment on the case of an individual borrower but said that the changes it is making with the new regulations are intended to fix these types of problems.
Update (8/30): The afternoon after this story was published, the Department of Education contacted the McDonalds and said Donita's Stafford student loans have been forgiven. Her other federal loans are still awaiting a final review for discharge.
Donita's mother, Deborah McDonald, who has been navigating the Education Department's dysfunctional disability review since early 2010 in her efforts to get these loans forgiven, said she was relieved when she got the news in a phone call from the department. But she also described her frustration that the department was only now addressing the problem.
"I feel like tears of joy and tears of rage," Deborah McDonald said. "If it was that easy, why the heck did I spend two years doing this?"