The new regulations came after an investigation last year by ProPublica found that the department's dysfunctional system for evaluating disability was keeping many genuinely disabled borrowers buried in student debt. Under federal law, borrowers who develop severe and lasting disabilities are entitled to get their loans forgiven.
The department's proposed reforms would streamline the application process and improve its communication with borrowers, eliminating many of the bureaucratic hurdles that frustrated applicants in the past.
But the department rejected a key reform that would have allowed many disabled borrowers to bypass its review altogether — tying the Education Department's standard for disability to that of the Social Security Administration, so that Social Security disability findings could be used to discharge loans.
"The most important reform is changing the definition [of disability], and without that it's impossible to have full reform," said Deanne Loonin, an attorney with the National Consumer Law Center and the director of its Student Loan Borrower Assistance program. "Given that they chose not to address that, I think they made some other substantial improvements."
Perhaps the most significant change is that all borrowers will now submit a single discharge application to the Education Department. Previously, many applicants had to undergo initial reviews by loan holders and guarantors, who could reject applications before they even reached the department.
The department also announced several reforms intended to improve communications with borrowers, which a federal court in Missouri found in 2009 to be so poor that they violated applicants' due process rights. Individuals seeking a discharge may now nominate a "borrowers representative," such as an attorney or caregiver, who must also receive all communications from the department. Letters that reject disability discharge applications must include detailed explanations for the denial.
Loonin, the student borrowers' advocate, said the changes will be significant — if the department makes sure they're actually implemented.
"We're still having problems with a lot of these things now," she said, noting that some of her clients continue to receive what she calls "rogue letters" that deny their applications without providing an explanation.
The department's refusal to accept disability findings from Social Security also means the department rejected what advocates describe as the single most important, and obvious, fix of the program: Doing so could have enabled a large proportion of applicants to avoid the cumbersome review entirely.
The department has long maintained that its legal standard of forgiving loans — "total and permanent disability" — is fundamentally different from that of Social Security, which can always cut off benefits if a patient recovers. But in 2008, Congress passed a law easing the standard for discharge to full disability for at least five years, aligning it closely with a designation made by Social Security for disabilities that aren't expected to improve. Both standards define disability as being unable to "engage in substantial gainful activity."
Mark Kantrowitz, an author and consultant on student financial aid, said the Education Department still needs to find a way to align its discharge standard with certain Social Security findings "so that disabled borrowers don't have to jump through the same hoops twice."
Tina Brooks, a disabled former policewoman profiled by ProPublica who spent more than five years battling to discharge her federal student loans, said several of the proposed changes would have helped in her struggle. Her biggest concern was whether the department would follow through on its pledge to give specific explanations of denial and communicate clearly with applicants.
"If they are actually are going to say why you are denied, I think it could change the whole program," Brooks said.
The Education Department said that its new rules will ease the burden that the lengthy double review has imposed on borrowers.
"The approach in the proposed rule will streamline the process," the department said. "With the streamlined process, we expect these determinations to be made much more quickly than the Social Security Administration is making determinations."
The regulations noted that the department had adopted its changes after "receiving significant public criticism in February 2011," the month ProPublica published its investigation, in collaboration with the Center for Public Integrity and Chronicle of Higher Education.
The proposed new rules will be open until Aug. 16 for public comments, which will be evaluated by the Education Department for inclusion in the final rule. Final regulations are usually similar to the rules proposed by the department.