I. Introduction
The National
Consumer Law Center (NCLC) and Consumers Union are responding to the Department
of Education’s proposed rules amending the disability discharge process under
the Federal Perkins Loan Program, Federal Family Education Loan Program, and
William D. Ford Federal Direct Loan Program regulations. These comments are
intended to address the issues of greatest concern to low-income individuals
and communities.
The National
Consumer Law Center, Inc. is a nonprofit Massachusetts corporation, founded
in 1969, specializing in consumer issues, with an emphasis on consumer credit.
On a daily basis, NCLC provides legal and technical consulting and assistance
on consumer law issues to legal services, government, and private attorneys
representing low-income consumers across the country. NCLC publishes a series
of thirteen practice treatises and annual supplements on consumer credit laws,
including Unfair and Deceptive Acts and Practices (4th ed. 1997), Truth In Lending
(4th ed. 1999), Repossessions and Foreclosures (4th ed. 1999), as well as bimonthly
newsletters on a range of topics related to consumer credit issues and low-income
consumers.
Consumers
Union, the publisher of Consumer Reports magazine, is a nonprofit organization
that advances the interests of consumers by providing information and advice
about products and services and about issues affecting their welfare, and by
advocating a consumer point of view. Both Consumers Union's publications and
advocacy work address student financial aid issues. For more than a decade,
Elizabeth Imholz, the signatory for Consumers Union, has worked as an advocate
on student aid issues, focusing particularly on the effect of federal policies
on low- and moderate-income students.
The Department’s
proposed rule is not authorized by the statute, will not work, will result in
genuinely disabled borrowers not receiving discharges to which they are entitled,
and will require guaranty agencies and Department staff to meet impossible demands
for vastly increased staffing and medical and vocational expertise. During the
negotiated rulemaking process, several negotiating team members presented detailed
proposals ("the nonfederal proposals") to reform disability discharge
determinations. The nonfederal proposals included a mechanism for revoking discharges
that were incorrectly granted, or that were given to borrowers who later experienced
significant improvement within a limited time period. We urge the Department
to rewrite the regulation in accordance with the nonfederal proposals, which
provide for a more reasonable approach, that will address the Department’s concerns
in a manner consistent with the statute.
II. The
NPRM is Not and Appropriate Response to the IG Report on Disability Discharges
a) The IG
Report Does Not Show Large Numbers of Inappropriate Disability Discharges
The NPRM starts
from an incorrect premise: that the IG report reveals systemic problems with
the pre-1999 disability discharge system. In fact, the IG reported that a small
number of borrowers earned substantial income after receiving a disability
discharge. The 23% figure in the IG report consist of only 1% who earned more
than $30,000, and 22% who had some earnings, between $0 and $30,000, in 1997.
There is no breakdown in the income ranges below $30,000, and we believe it
is likely that the 22% are concentrated at the lower end of that range, probably
below the $700 month income disregard established by the Social Security Administration
for Disability Insurance recipients, and quite probably below the poverty level.
A careful reading
of the IG’s report and findings is important. The discharge process should not
be made impossibly burdensome for 99% of borrowers because of abuse, or changed
circumstances, in 1% of cases. It is also essential to evaluate whether the
problems brought to light by the IG report reflect intentional fraud by borrowers
on a large scale, or other factors. In our view, the IG’s findings result from
a combination of:
1) a discharge
application form for use by physicians that does not provide clear instructions
and guidance to the physicians, making it difficult for gurantee agencies and
Department staff lacking medical training to interpret their responses, and
2) the fact
that many disabled individuals attempt to rehabilitate and have trial periods
of employment, although few are able to resume substantial unassisted employment.
b) The NPRM
Does not Follow the IG's Recommendations
The Inspector
General report made five recommendations to address the reported deficiencies
in disability discharge determinations. The IG recommendations have much more
in common with the nonfederal negotiator proposals than with the NPRM drafted
by the Department.
The first IG
recommendation was to improve the disability form to require a doctor’s professional
license number and office telephone number, a recommendation the Department
can and should implement, without any new regulations.
The second
IG recommendation was to establish a focal point, i.e. a knowledgeable coordinator
within the Department, to assist guaranty agencies in making disability discharge
decisions. This would not require regulations, and we would support this step.
The third IG
recommendation was to provide guidance to agencies as to how to deal with conflicting
information, including evidence that a borrower seeking or receiving a disability
discharge is subsequently employed. We believe that the nonfederal proposal,
providing for a procedure to revoke discharges, as well as providing for clear
standards as to how much employment would result in a finding that a borrower
was no longer disabled, squarely addresses this recommendation, while the Department’s
NPRM does not.
The fourth
recommendation was to establish a procedure for reinstating a discharged loan,
i.e. a discharge revocation procedure. This is exactly what the nonfederal negotiators
recommend, and is contrary to the approach in the Department’s NPRM.
The fifth recommendation
is that the Department consider working with the Social Security Administration
(SSA) either to have SSA determine eligibility under the Department’s disability
definition (which we believe is impractical) or to require that borrowers qualify
for SSA disability benefits to get a discharge. The nonfederal negotiators believe
their proposal provides a practical and realistic way to benefit from SSA’s
extensive disability determination apparatus, while the Department’s approach
makes little or no effective use of the SSA disability review process.
III. A Discharge Revocation Procedure Can Fully Address Two
Distinct Problems Raised by the IG Report: Borrowers Who Received Discharges
But Were Not Disabled At All, and Those Whose Disability Has Ended
The concern prompting the IG report and the NPRM was that some borrowers who
received disability discharges were found later to be employed. We believe that
there are three situations where borrowers become employed after receiving a
disability discharge, and each should each be addressed in a different way.
The first situation
is a disabled borrower who has minimal earnings, which do not represent a return
to full employability. Obviously some threshold needs to be established to distinguish
between sheltered work or unsuccessful rehabilitation attempts on the one hand,
and genuine rehabilitation and return to the workforce on the other. It seems
logical to use the thresholds established by the SSA for its Disability Insurance
program, the most comprehensive disability program run by the federal government.
The second
situation is a disabled borrower whose condition improves, and who ceases to
be disabled. Federal policy strongly favors efforts of the disabled to return
to work1. Therefore, the student loan discharge
regulations should avoid excessive disincentives for the disabled to return
to work. While the borrower may no longer have the inability to earn income
that supported the loan discharge, the regulation should balance the policy
of maximizing loan repayment with the policy of assisting the disabled in returning
to work. We believe the proper balance can be struck by providing for a revocation
of discharge for a limited time period if the borrower returns to substantial
employment, but that disability discharges should not be revoked beyond a two-year
period.
The third situation involves either an erroneous determination
of disability, or outright fraud. If a guarantee agency or the Department obtains
information after a discharge that establishes that the discharge was not properly
granted in the first place, certainly the discharge should be revoked. However,
basic principles of fairness and due process require that the burden be on the
Department to initiate such a revocation on the basis of reliable evidence.
The Department’s proposal reverses the proper burden, and requires every
disabled borrower to prove at the end of a waiting period that their discharge
should not be revoked.
IV. The
Department's Proposed Disability Determination System is Administratively Unworkable
and not Cost-Effective
Without a very
large staff of medically trained disability reviewers the Department cannot
fairly second-guess physician certifications of disability.
From the time
the IG report was issued, the Department has instituted a variety of ad hoc
procedures, some of which are set forth in the Dear Colleague letter. Legal
services advocates have seen numerous instances in which an unambiguous certification,
on the proper form, by a licensed physician, has been rejected as a basis for
a disability discharge. It appears that the Department personnnel involved are
particularly skeptical of mental health diagnoses, which if true, would raise
serious discrimination implications under the Americans with Disabilities Act.
More importantly, the decision making process, which the Department apparently
now wants to codify in regulations, is arbitrary and indefensible.
The proposed
regulation calls for institutions, lenders and guarantee agencies to engage
in ad hoc decision making. At Sec. 674.61(b)(3)(i) Perkins schools must review
a physician certification and determine that "it supports the conclusion
that the borrower meets the criteria for a total and permanent disability discharge".
Lenders and guarantee agencies are charged with the identical task in the corresponding
provisions for FFEL loans.
It is simply
not possible, even for a medically trained reviewer, to determine, merely by
reading a physician’s certification, whether a borrower is disabled. There are
many diagnoses, for example, that may or may not be disabling, including many
mental health conditions such as severe depression. SSA’s disability determination
system includes detailed listings of impairments, and an elaborated procedure
to evaluate the claimant’s impairments in conjunction with other important factors
such as age, prior work, and education. At a minimum, a fair disability review
process would require the reviewer to obtain the borrower’s complete medical
records. As a practical matter, we believe that the requirements of administrative
due process would call for a review system on the order of what SSA has established,
something the Department clearly is not contemplating.
Although the
Department could conceivably "staff up" an entire disability claim
review operation, we are skeptical the Department can commit the resources necessary
to do the job properly. The Social Security Administration, through state disability
review agencies, employs tens of thousands of employees to review about 2 million
new applications for disability benefits and review about 1.8 million open cases,
each year. The IG report refers to approximately 40,000 student loan disability
discharges granted over a 2 ½ year period. SSA expends about $600 per initial
disability determination, about $400 for reconsideration, and about $1,400 per
administrative appeal hearing2. The Department would
obviously not realize the economies of scale of the SSA, and hence could easily
expend more, perhaps $2,000 per disability review or more. If the Department
spent $2,000 per case for the 40,000 discharges covered by the IG report it
would expend $80 million. The IG report suggests that up to $73 million in loans
were discharged for borrowers who had some employment income in the ensuing
years. If, as we believe, a large majority of these disabled borrowers would
not meet a reasonable threshhold earnings test, the number of disability discharges
that would be denied with a perfect disability review process would have
been substantially less than $73 million, and hence to spend $80 million, or
even half that amount, on a disability review process would not be cost effective.
While we certainly
agree that ineligible borrowers should not receive discharges, the Department
must make a clear choice. Either it can improve the streamlined procedures now
established for disability discharges without greatly increasing their cost,
or it can attempt to provide SSA-like reviews at a cost that would undoubtedly
exceed any savings in preventing or correcting erroneous discharge decisions.
In contrast, the nonfederal proposal does not require a new bureaucracy, while
still addressing the main concern of the IG report, namely disability discharge
recipients who return to work.
V. A Conditional
Discharge Is Not Authorized By The Statute
The Statute,
§1087(a) says simply that if a borrower becomes totally and permanently disabled,
the Secretary discharges the loan by paying the balance in full. There is no
authorization to defer or suspend loan repayment or create any other temporary
loan status. The Department’s proposal for a suspension of collection activity
for three years will inevitably lead to litigation by borrowers applying for
disability discharges.
On the other
hand we believe the Department has the legal authority to revoke a discharge
that was improperly granted, even based on information that develops after the
initial decision. The Department has in fact established discharge revocation
for the closed school discharge, see 34 C.F.R. §682.402(d)(4)(ii).
We believe
this provision is consistent with the Department’s inherent authority to reconsider
an agency decision in light of newly discovered evidence or subsequent occurrences,
so long as the reconsideration is based on reliable evidence and the borrower
receives due process. The closed school discharge revocation clearly contemplates
the possibility the Department could undo a discharge after it was properly
granted, even based on a subsequent development, such as a borrower refusing
to cooperate in actions against a school to recover the loan funds. This is
similar to the revocation of a disability discharge on the basis of improvement
of a borrower’s medical condition such that he or she is no longer disabled.
VI. The
Proposed Rule’s reference to Certification or Documentation of Disability from
the Social Security Administration will not Work because SSA Does not Provide
Certification or Documentation as Described in the Proposed Rule
The proposed
preamble states:
We are working
with the SSA to determine if there is specific documentation that the SSA
provides to some individuals that would be comparable to a physician’ s certification
that a borrower is totally and permanently disabled as defined in our regulations.
We would first
urge the Department to say precisely what it intends in the preamble and the
rule. As presently written, the preamble and rule may suggest to some readers
that documentation that a borrower has been found disabled by SSA will be sufficient
to establish disability for a student loan discharge. This is clearly not what
the Department intends. As presently written the preamble and Sec. 674.61(b)(3)(ii)
are potentially misleading, and allude to the Department working with SSA to
identify unspecified "documentation" that might be acceptable. The
Department should make plain its intentions.
It is our understanding
that the Department intends to rely on SSA’s system of classifying Disability
Insurance and SSI Disability recipients for purposes of continuing disability
reviews. SSA uses three categories to determine how frequently to review a beneficiary’s
eligibility: medical improvement expected diary (MIE), medical improvement not
expected (MINE) and medical improvement unpredictable (MIU.) See 20 C.F.R. §416.990(c),
(d). If the Department intends to limit its waiver of physician certifications
to only those borrowers found by SSA to be in the MINE category, a very small
percentage of Social Security and SSI Disability recipients will benefit from
any streamlining. The MINE category is limited to individuals who have very
serious disabilities, usually that are progressive and/or fatal, such as full-blown
AIDS or ALS (Lou Gehrig’s disease.) These borrowers would probably not have
any trouble obtaining a physician certification of permanent disability in any
event.
To make effective
use of the SSA’s extensive disability review system, we urge the Department
to go further. The Department should use the Continuing Disability Review classifications,
if at all, as a basis for determining which borrowers’ disability discharges
to review for possible revocation within the limited time period (our suggestion
being 2 years.) Borrowers should be able to supply a disability benefits award
letter in lieu of a physician certification in all cases, as sufficient
evidence to warrant a disability discharge. Borrowers who rely on SSA awards
could be required to sign an appropriate release so that the Department could
share information with SSA on earnings records and continuing disability reviews,
which would allow automatic revocation of student loan discharges when warranted
by a return to substantial employment or medical improvement.
The possibility of substantial
improvement in a claimant’s condition can be handled through a revocation procedure,
without undermining the validity of ED relying on SSA disability determinations
as conclusive. The Department should treat SSA disability findings as sufficient
to grant a student loan disability discharge, subject only to the possibility
the discharge could be revoked or rescinded if the borrower engages in substantial
work activity or is found by SSA to no longer be disabled, in a defined period,
which we suggest would be two years. In this way, the Department can take advantage
of the SSA’s extensive disability review resources, while addressing its own
concerns about disabled borrowers whose condition later improves.
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1
See Work Incentives Improvement Act, Public Law No: 106-170, providing
for continued medical benefits and incentives for disability insurance beneficiaries
to return to work, and making the following findings (Section 2):
(9) In addition to the fear of loss of health care coverage, beneficiaries cite
financial disincentives to work and earn income and lack of adequate employment
training and placement services as barriers to employment.
(10) Eliminating such barriers to work by creating financial incentives to work
and by providing individuals with disabilities real choice in obtaining the
services and technology they need to find, enter, and maintain employment can
greatly improve their short and long-term financial independence and personal
well-being.
(11) In addition to the enormous advantages such changes promise for individuals
with disabilities, redesigning government programs to help individuals with
disabilities return to work may result in significant saving and extend the
life of the Social Security Disability Insurance Trust Fund.
2 Social Security Administration, Social
Security Accountability Report for Fiscal Year 1999, pp. 84-87
