THE SECRETARY OF EDUCATION WASHINGTON, D.C. 20202

July 19, 1999

Honorable Fred Thompson
Chairman
Committee on Governmental Affairs
United States Senate
Washington, DC 20510-6250

Dear Mr. Chairman:

Thank you for your letter of June 14, 1999, regarding the recent Office of Inspector General (OIG) report on discharged student loans. As you are aware, we initiated this effort when we asked the OIG to conduct a match with the Social Security Administration. I too am greatly disturbed by the possibility of a significant number of improper loan discharges under the Federal Family Education Loan Program on the grounds of the borrower's alleged total and permanent disability or death. We will aggressively seek recovery of funds from those individuals who have fraudulently received this benefit. We are gratified that the OIG agreed to conduct this audit, and appreciate their continuing assistance.

The cancelled loans in the match were virtually all made under the Federal Family Education Loan Program and the cancellation requests were evaluated by guaranty agencies, under guidelines developed by the Department. Although the William D. Ford Direct Loan Program, which began making loans in 1994, uses the same criteria for evaluating a borrower's eligibility for a cancellation, very few Direct Loan cancellation requests were received during the period covered by the OIG report. Therefore, we have engaged the guaranty agencies to assist in our effort to reengineer the application and evaluation process for both programs to ensure that those individuals who would abuse the programs are not successful.

More specifically, in the short term we will:

• Require a certified certificate of death (or other reliable documentation) for cancellations due to the borrower's death.
• Redesign the disability application to collect additional information regarding a borrower's disabling condition and the prognosis for recovery. In addition, we will collect the physician's professional license number on the form and urge guaranty agencies to conduct periodic matches to verify the identity and credentials of the person providing the certification. (The current disability application requests the physician's telephone number.)

Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.

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• In consultation with the guaranty agencies, implement a more rigorous evaluation process for determining if a borrower qualifies for a total and permanent disability cancellation. That process will include --
  • Requiring additional documentation to support the borrower's application in cases where the information in the initial application is not definitive;
  • Empowering the reviewers to question the physician's certification if the diagnosis and prognosis do not appear to reach the standard of "total and permanent;" and
  • Assisting the borrower in obtaining a deferment or forbearance in cases where it does not appear that the borrower is totally and permanently disabled but it is evident that the borrower's ability to repay has been impaired by a temporary disability.

In addition to these short-term initiatives, we will also pursue a more comprehensive strategy to overhaul the entire process. In reviewing the options, the Department will consult with the Social Security Administration, the Department of Veterans Affairs and other Federal and private organizations that have an infrastructure for evaluating the medical condition of individuals, to determine if there are opportunities for the Department to participate in an existing, proven process. We will also explore the possibility of providing "conditional" cancellations in certain cases and reinstate the debt if a subsequent match with another Federal or state agency reveals the borrower was able to work or return to school. We will also examine requiring borrowers who have received disability discharges to reaffirm their prior debt if they want further student aid. This would reinstate the regulatory requirement that existed prior to 1995. The Department will determine what data is accessible from other agencies and whether additional legislative authority is needed for the Department or guaranty agencies to gain access to and utilize this information.

I am sensitive to the needs of those borrowers who are truly totally and permanently disabled, and thus are entitled to have their student loan obligations cancelled. Our goal is to implement a process that balances the need for prompt service with a minimum of burden while ensuring program integrity.

Greg Woods, Chief Operating Officer, Office of Student Financial Assistance, is leading the analysis of operational changes needed to prevent future abuse. Based on this analysis and in consultation with Mr. Woods, I will consider what changes in regulatory or legislative policy would be desirable. Thank you again for letting me know your views on this issue.

Yours sincerely,

Richard W. Riley