By Sasha Chavkin

ProPublica – Feb. 24, 2011

Scott Creighton of Tampa, Fla., is having his Social Security disability checks garnisheed by the Education Department to pay down his debt on student loans. Seriously disabled borrowers are entitled to get federal student loans forgiven, but the program for deciding whether they qualify is opaque, dysfunctional and redundant. (Brian Blanco/ProPublica)

After an investigation by ProPublica last week found that the Department of Education’s bureaucratic program for forgiving the federal student loans of disabled borrowers has kept many disabled applicants in debt, the department said this week that it will overhaul the troubled program.

“This system must work better for borrowers that become totally and permanently disabled,” said Justin Hamilton, a spokesman for the Education Department. “We’ve put in place a number of major changes to address many of the problems borrowers encountered, and will be making even more changes when we issue proposed regulations in the coming months.”

The comments came after our story—a joint effort with the Center for Public Integrity—found that although borrowers who develop severe and lasting disabilities are legally entitled to get federal student loans forgiven, the process for deciding who is eligible is dysfunctional, opaque and duplicates similar reviews conducted by other federal agencies. Many borrowers have been denied for unclear reasons and many others have simply given up.

The department said it’s going to quickly implement a number of fixes to be more responsive to applicants, and is also considering fundamental changes. In particular, it is weighing accepting the disability determinations that Social Security Administration and other federal agencies have made. The department also said it’s studying whether to bypass its bureaucratic program altogether and instead rely on Social Security or another agency to review all applications. As we reported last week, those same reforms have repeatedly been recommended to the department by its own ombudsman since 2008, but the department has so far declined to act on them.

The Education Department has long promised to improve the system, including pledges to cooperate more closely with Social Security and other disability programs. But this time, the department said it will write new regulations to address the disability discharge program, the first time in a decade it has done so without being directed to by Congress. In addition, the department said that it believes that it has the authority to make the necessary changes and does not require Congress to pass new legislation, removing an obstacle that it has cited in the past as preventing it from adopting these reforms.

Still, it’s an open question how far the department will go, or exactly when the changes will be implemented. The department said that is still examining its options and will release its proposed rules this summer. After that, it will likely be a year before the rules are set and go into effect.

The Education Department’s pledges of reform came as key lawmakers from both parties called on the department to fix the system that is currently in place.

“The current process is neither transparent nor efficient,” said Sen. Al Franken, D-Minn., who sits on the Senate’s Health, Education, Labor and Pensions committee. “It’s unconscionable that some people have been turned down for loan forgiveness not because they don’t qualify, but because of simple paperwork errors that could be easily addressed.”

In the House of Representatives, the chairwoman and ranking member of the Subcommittee on Higher Education demanded improvements to the program.

Rep. Virginia Foxx, R-N.C., the subcommittee’s chairwoman, criticized the Education Department’s disability review as duplicative and said that the subcommittee would look into the issue.

“This looks like a classic example of government waste and bureaucratic inefficiency that not only wastes taxpayers’ money, but also their time,” Foxx said. “The Higher Education Subcommittee will be taking a closer look at this problem to determine a solution that will save taxpayer time and money.”

Rep. Rubén Hinojosa, D-Texas, the committee’s ranking Democrat, said he was concerned about the plight of disabled borrowers seeking loan forgiveness and that “our government should take all actions possible to make this process more streamlined for those who are suffering through these hardships.”

The Education Department said that while many of the problems will be addressed by their proposed rules, they are quickly implementing other fixes for disabled borrowers.

The department pledged to conduct a review of the procedures for disability discharge within the next 90 days to identify areas of “undue burden” to applicants, and act immediately to change practices that could be amended without new laws or regulations. It also said it would make it easier for borrowers to document that they are experiencing economic hardship, a finding that prevents the department from garnishing disability benefits to pay down student loan debt.

Though it will take more time, the department also said it will begin direct data sharing with other federal agencies to reduce the documentation burden on applicants, and will create a customer service group within the department to assist disabled borrowers with the loan discharge process.

It is also planning to streamline the process so borrowers only have to submit a single application to the Education Department, rather than having to apply to lenders and guarantors that hold government-backed loans before being considered by the department.