The government has clawed back more than $2.5 billion that veterans received, data shows

The Department of Veterans Affairs has clawed back billions of dollars that countless veterans were given as incentive to leave the military, including when it needed to downsize, according to new data obtained by NBC News.

Disabled veterans have been told in the last 12 fiscal years to return nearly $3 billion in special separation pay — lump-sum incentives that were offered when the U.S. had to reduce its active-duty force or release slightly injured service members, the data shows.

Since fiscal year 2013, the earliest year for which the VA shared data, about 122,000 veterans have returned more than $2.5 billion so far, with about $364 million still left to be recouped, according to the VA.

“It felt like I would never see the light at the end of the tunnel,” said Damon Bird, who struggled to repay the roughly $74,000 incentive he received to leave the Army in 2015.

The VA said it is legally bound to recover separation payouts from veterans before those eligible can begin receiving disability compensation, due to a little-known federal law that prohibits them from receiving both, NBC News previously reported.

The obscure law — of which about a dozen military law and veterans policy experts said they did not have enough knowledge to weigh in on — has thrown many disabled veterans into financial and emotional despair since Congress authorized it in 1949.

Bird, 54, said he and his wife had to leave their rental home in Haslet, Texas, to move in with their daughter in 2021 when the VA began withholding his monthly disability payment of more than $2,400 until he returned his separation pay.

“We were barely keeping up with our day-to-day cost of living,” said Bird, who was diagnosed with service-connected bladder cancer and post-traumatic stress disorder. “It was already bad enough as it was, but I had already been dealing with mental health issues prior to losing that income.”

Army veteran Salahudin Majeed, now 73, still remembers the anguish he felt when the VA told him he needed to repay the special separation benefit he received in 1992.

The roughly $30,000 pre-tax payout was one of his greatest sources of pride at the time, he said.

“I took the stipend and I let my children read the check,” Majeed said. “I said, ‘We are never going to see this amount of money again in our lifetime.’”

Majeed said he put most of the money toward a down payment on a house for his growing family. Two years later, the VA said he had to repay the full incentive to receive disability compensation.

“I was depressed,” he said, adding that he was prescribed an antidepressant for the first time. “I felt like I had been used and abused.”

Veterans wage legal battles 

Congress has prohibited service members from receiving two government benefits at the same time for the last 75 years, according to the Congressional Research Service.

In 1949, when Congress authorized disability severance pay — a special lump-sum payment given to service members who leave active duty because of minor physical disabilities — it specifically stated that the payout would have to be recouped through VA disability compensation, the research group said.

That provision was “fully justified when the amount of money involved is considered,” the House report that accompanied the bill said, according to the Congressional Research Service.

The justification of the recoupment rule carried over in the 1990s when other forms of special separation payments — unrelated to disabilities — were authorized. Those payments, including the Special Separation Benefit (SSB), were designed instead to help the Defense Department manage its force size.

Advocates say the recoupment statute should not be applied in those cases and that it robs veterans of earned benefits that should not be linked financially.

While those separation incentives were based on a service member’s military career and calculated by years of active duty, disability pay solely relates to illnesses or injuries sustained during service, according to Marquis Barefield, an assistant national legislative director with DAV, an advocacy group formerly known as Disabled American Veterans.

“The two payments have nothing to do with each other,” Barefield said. “They are two separate buckets of money.”

Navy veteran John Colage, 62, is currently fighting his case in the U.S. Court of Appeals for Veterans Claims, arguing that the VA convoluted the law to justify recouping SSB payouts.

SSB was authorized by statute 10 U.S.C. 1174a, VA press secretary Terrence Hayes said. Hayes said the amount of SSB must be recouped from VA disability compensation under a section of the law that applies to 1174a by virtue of a third section.

Colage said he believes the VA is incorrectly holding many disabled veterans to a section that pertains to retirement pay, not disability.

“They’re wrong,” he said. “They weren’t supposed to take this money.”

Colage, who survived the 1989 explosion on the USS Iowa that killed 47 people, said he received about $23,000 after taxes when he took an SSB payout in 1992. He was told to pay back the money in 2017 after he filed for VA disability for PTSD and other conditions. The VA has been withholding about $370 each month, he said.

“They’re screwing tens of thousands of veterans out of money,” Colage said.

The VA said it cannot comment on individual appeals. In a court motion this month, VA Secretary Denis McDonough’s attorney requested an extension to respond to Colage’s case by Sept. 16, citing, in part, his workload, court records show.

Majeed, the 73-year-old Army veteran, also received an SSB payout and similarly argued against his recoupment in the Court of Appeals for Veterans Claims nearly 30 years ago. But he ultimately lost.

In 1998, the Board of Veterans’ Appeals determined, among other things, that his “VA disability compensation is subject to recoupment of separation pay.”

“What I thought was rightfully mine,” Majeed said, “they were not going to give it to me.”

‘We need a statutory change’

Disabled veterans have long had issues with the law. Their concerns prompted Congress to require a study on the effects recoupment has had on veterans.

In 2022, the RAND Corp., the nonprofit research group that conducted the study, found that the law forced at least 79,000 veterans to repay different types of separation benefits from 2013 to 2020.

The actual number of affected veterans and the total amount of money recouped are likely much higher. The researchers noted in the study that they faced data limitations due to a major change the VA’s systems underwent in 2013, leaving as many as six decades unaccounted for.

Despite historic efforts by Congress to cement recoupment decades ago, at least one current member of Congress is now hoping to reverse it. In 2022, Rep. Ruben Gallego, D-Ariz., introduced a bill that would eliminate recoupment of disability benefits.

“We need a statutory change,” he said. While there has been bipartisan support for the measure, Gallego said the legislative progress has been slow because it is costly.

Meanwhile, veterans who say they were not aware of the law when they took the payouts have been left to make significant and often agonizing life changes.

When Bird, the Army veteran who had to move in with his daughter, was given the involuntary separation pay of about $74,000, he thought it was comparable to layoff-related severance pay in the civilian world and used the funds to build a new life.

Bird relocated from Missouri to Texas, paid off his debts and tried out different careers until he landed a job as a high school math teacher at a school near his home.

“It was immense,” he said of the money’s impact. “For several years, we had gotten comfortable.”

Then, six years later, the VA sent him a letter, saying he should not have been receiving both disability and separation benefits without penalty.

“I gave up myself for almost 18 years to do everything I could to serve my country,” said Bird, a senior officer who completed two tours in Iraq, including during the initial invasion. “It was a dagger in the back.”