Sloppy Reporting, Slopping Thinking, Sloppy Dept. of Ed Officials - A Reader Weighs In

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A reader sent some interesting remarks about my recent piece that was published by USA Today. Here's what they had to say:

A key area of confusion in some articles is the very different way that federal loans (FFEL, DL and Perkins) are handled from the way that private educational loans are handled.  Unlike your articles, the mainstream press doesn't usually specify whether a debtor is trying to discharge a private loan or a federally-related loan.  In general, for the private loans, it is caveat emptor, you must go to a private insurance company (significantly prior to becoming disabled) and take out supplemental disability insurance (similar to what is offered on car loans and mortgages), otherwise there is typically no feature in the loan contract that allows a discharge for disability.

For the federal loans, there have been at least four major changes over the past three decades.  Starting with disability cases 7/1/10 and beyond, the loans are zeroed out immediately, but the debt obligation can be restored if the former borrower fails to meet the standards.  From the borrower's standpoint this still sounds better than the 2002-2010 process where the borrower had to wait in limbo for one to three years with pre-discharge medical and income verifications (now the medical and income verifications are post-discharge).  In some ways it might be better from the borrower's standpoint to return to the pre-1995 system that had deferments for temporary total disability and discharges for permanent total disability, with no medical or income verifications for either, just self-certification.

Program integrity and protections against fraud, waste and abuse need to be balanced against the borrower confusion and high administrative cost stemming from increased program complexity.  If Pro Publica, Kantrowitz and Wiley don't even understand the process, then what hope is there for the rest of us?  And what about the entities which, under the original 1966 loan program specs are obligated to perform the medical analysis?  The lenders and guaranty agencies just get a check from Uncle Sam and pass the buck down the line.  They didn't want to hire the staff to do the analysis, so, even if someone has a 1% chance of a discharge, they pass it down the line to Uncle Sam and get their federal insurance and reinsurance checks.  When the discharge application gets rejected, the borrower is no better off and is simply serviced by a federal contractor rather than a lender-servicer.  The Treasury saves money due to the sharp decrease in fraudulent discharges but everyone else pays costs in extra administration, paperwork and time.