Publication Date: May 2002
DCL ID: GEN-02-03
New Total and Permanent Disability Discharge Procedures for Title IV Loans
- Effective July 1, 2002
SUMMARY:
This letter discusses implementation of the regulatory changes for total and
permanent disability discharges in the Federal Perkins Loan, Federal Family
Education Loan (FFEL), and the William D. Ford Federal Direct Loan programs.
The final regulations were published on November 1, 2000. While some
of the provisions went into effect on July 1, 2001, most of the regulatory changes
become effective July 1, 2002. This letter provides guidance to Perkins school
lenders, FFEL lenders, and guaranty agencies on the new procedures for processing
total and permanent disability discharge requests.
Dear Colleague:
To address weaknesses in
the procedures for granting total and permanent disability discharges on federal
student loans identified in a June 1999 report issued by the Department's Inspector
General, the Department conducted a negotiated rulemaking process with representatives
from the higher education community from January to May 2000. All members of
the negotiating committee could not reach agreement on the proposed regulatory
changes, and the Department published proposed regulations for public comment
on August 2, 2000.
After considering the public comments received on the proposed regulations and
making changes where appropriate, the Department published final regulations
on November 1, 2000, that significantly revise the process for granting disability
discharges. In addition, as part of those regulations, the definition of total
and permanent disability was changed, removing the requirement that a borrower
be unable to attend school. This revised definition became effective July 1,
2001.
Under the changed definition,
a borrower is totally and permanently disabled if the borrower: "is unable
to work and earn money because of an injury or illness that is expected to continue
indefinitely or result in death" [34 C.F.R. §§674.51(s), 682.200].
The final regulations also made significant changes to the process for evaluating
disability discharge applications. Those changes will go into effect on July
1, 2002.
This Dear Colleague Letter
provides a general overview of the disability discharge regulations and procedures
that go into effect on July 1, 2002. In addition, Attachments 1 and 2 to this
letter provide guidance specific to Perkins school lenders and FFEL lenders
and guarantors. Attachment 3 outlines the role of the Department in the new
process.
I.
Overview of Regulatory Changes
The regulatory
changes revising the process for granting total and permanent disability discharges
are contained in 34 C.F.R. §674. 61(b) of the Perkins regulations, 34 C.F.R.
§§682.402(c) and 682.402(r) of the FFEL regulations, and 34 C.F.R.
§685.213 of the Direct Loan regulations. Under the new regulations, the
disability discharge procedures are as follows:
1. The borrower applies
to the loan holder (i.e., the current owner of the loan) for a disability discharge.
For Perkins Loans, the loan holder is the Perkins school lender. For FFEL loans,
the loan holder is a lender or, if the loan has gone into default, a guaranty
agency. For Direct Loans and other Title IV loans assigned to the Department,
the loan holder is the U.S. Department of Education.
The loan holder must make
a preliminary determination as to whether the borrower meets the criteria for
a total and permanent disability discharge. For Perkins loans, the preliminary
determination is made by the school. In the FFEL Program, the current loan holder
makes the determination. For Direct Loans, the preliminary determination is
made by Direct Loan staff. For other loans held by the Department, the preliminary
determination is made by the Department's Federal Student Aid (FSA) Collections.
In addition, for FFEL loans, the guaranty agency conducts an independent evaluation
of the discharge request after the FFEL lender makes a preliminary determination
that the borrower qualifies for the discharge, except in the case where the
guaranty agency is the current loan holder and the borrower submitted the discharge
request directly to the guaranty agency.
2.
If during the preliminary determination a loan holder, guaranty agency
or the Department determines that the borrower does not meet the criteria for
a disability discharge, the discharge request is denied, the loan is returned
to its prior status and, as appropriate, collection activity or regular servicing
resumes on the loan.
3.
For Perkins Loans, if the school determines that a borrower meets the
criteria for a disability discharge, it must assign the loan to the Department's
Disability Discharge Unit. For FFEL
loans, the loan is assigned to the Department's Disability Discharge Unit if
both the loan holder and the guaranty agency determine that a borrower meets
the criteria for a total and permanent disability discharge.
4. The
Department reviews all assigned loans with discharge applications to affirm
that the borrower meets the criteria for a discharge.
If we affirm that the borrower meets the criteria for a total and permanent
disability discharge, the loan is placed in a conditional discharge status for
three years. During this conditional discharge period, the borrower is not required
to make payments and interest does not accrue.
5. During
this conditional discharge period, we will monitor whether the borrower has
been able to work and earn money or has received a new Title IV loan in order
to ensure that the borrower continues to qualify for the total and permanent
disability discharge. At the end of the conditional discharge period, we will
make a determination that the borrower has met the definition of total and permanent
disability if he or she has not had annual earnings from work during the conditional
discharge period in excess of the poverty level for a family of two, and has
not received any new Title IV loans during the period. If these conditions are
met throughout the conditional discharge period, we will grant a final discharge.
6. In some cases, a borrower
may have become totally and permanently disabled, as determined by a physician,
three or more years before the loan is assigned. In these cases, the initial
determination of eligibility - based on the borrower's medical documentation
- and the final determination of eligibility - based on the borrower's earnings
and subsequent Title IV loan activity - will be conducted at the same time and
we may immediately grant a final discharge.
During
the discharge process, borrowers will be given a phone number to call and speak
with a representative if they have any questions about their discharge requests.
Borrowers will also be told that they
may contact our Student Loan Ombudsman for assistance in resolving disputes.
However, as with the current total
and permanent disability discharge process, there is no formal appeals process
for a borrower who is denied a discharge.
Currently,
disability discharge requests in the FFEL and Direct Loan Program are processed
using the form titled "Loan Discharge
Application: Total and Permanent Disability" [OMB Number 1845-0015].
Perkins school lenders do not currently use a Department of Education
form for processing disability discharge requests, although they have a comparable
application process. We have developed
a new total and permanent disability discharge application for use in all three
of the Title IV loan programs. This
form is currently under review by the Office of Management and budget.
After this new total and permanent disability discharge application form is
approved by OMB in the next few weeks, we will make it immediately available
to the financial aid community by posting it to the Information for Financial
Aid Professionals (IFAP) web site as an attachment to a Dear Colleague Letter.
The new disability discharge application must be provided to all borrowers
who request total and permanent disability discharges on or after July 1, 2002.
However, program participants may use the previous form for borrowers who were
in the discharge process prior to July 1, 2002, but must follow the new standards
and procedures for all disability discharge determinations made on or after
July 1, 2002.
III.
Triggering Date for Implementation of New Procedures
The
new standards and procedures for granting total and permanent disability discharges
resulting from the November 1, 2000 final regulations that are discussed in
this letter go into effect on July 1, 2002.
For all
disability discharge requests approved on or after July 1, 2002 based on the
previously approved total and permanent disability discharge form (or a school
form for Perkins borrowers), the loan holder must, in the preliminary determination
letter, inform the borrower that the regulations governing disability discharges
have changed and explain the new total and permanent disability eligibility
criteria and discharge process.
IV. Department's Expectations
for Holders' Preliminary Determinations
We expect loan holders
and guaranty agencies to conduct rigorous evaluations of disability discharge
requests. If the borrower's medical documentation does not support the conclusion
that the borrower is unable to work and earn money because of an injury or illness
that is expected to continue indefinitely or result in death, the discharge
request should be denied. Loan holders and guarantors should follow the guidance
for reviewing disability claims that was provided in Dear Guaranty Agency Director
Letter 99-G-324, dated November 1999. This guidance states that loan holders
are expected to:
1. Require additional
documentation to support a borrower's application if the information provided
by the borrower is not definitive, is illegible, or is incomplete.
2. Require the physician
to affirm certification of disability if the diagnosis does not appear to
satisfy the standard for discharge. If it appears that the physician has used
a less rigorous standard in certifying the borrower's disability, loan holders
should clarify the definition of "total and permanent disability"
with the physician.
Loan holders may want to
seek the assistance of a qualified physician to evaluate total and permanent
disability discharge requests, as appropriate. Loan holders should also report
to the Department's Office of Inspector General any questionable patterns related
to physicians' certifying signatures or state licensing numbers regarding the
legitimacy of the disability discharge request.
The Attachments to this
letter provide more detailed information on the new eligibility criteria and
procedures for granting total and permanent disability discharges.
We would like to thank
the student financial aid community for its assistance in developing these new
procedures and designing the new total and permanent disability discharge form.
We look forward to continuing to work with you to ensure that only those borrowers
who are eligible will continue to receive total and permanent disability discharges
on their Title IV loans. Thank you for your cooperation in implementing these
new safeguards and your continued support of the federal student financial assistance
programs.
Sincerely,
|
Jeffrey
R. Andrade
Deputy Assistant Secretary for
Policy, Planning, and Innovation
Office of Postsecondary Education
|
Greg
Woods
Chief Operating Officer
Federal Student Aid
|
Attachment
1: Federal Perkins Loan Program
Attachment 2: FFEL Program
Attachment 3: Department of Education
Attachments/Enclosures:
Attachment
1: Federal Perkins Loan
Program in PDF Format, Size 15KB, pages 4
Attachment 1: Federal Perkins
Loan Program in MS Word Format, Size 48KB, pages 4
Attachment 2: FFEL Program in PDF Format, Size 18KB, pages 5
Attachment 2: FFEL Program in MS Word Format, Size 35KB, pages 5
Attachment 3: Department of Education in PDF Format, Size 14KB, pages 3
Attachment 3: Department of Education in MS Word Format, Size 34KB, pages 3
