It's a terrible loophole that needs to be closed. In the meantime, it seems we can't in good conscience encourage people to use their on-campus counselors for mental health crises. (And the off-campus counselors are going to be more expensive, such that people you warn off the on-campus ones might just get no help at all.) :/
Here's an example of a college administration obtaining therapist records to use in their legal defense, under FERPA after the student sued them: http://www.npr.org/blogs/health/2015/03/09/391876192/college...
In this day and age, I would be very, very careful about who you talk to about any kind of mental health issues. Get a reference from somebody you know and trust who has received direct care from the professional in question. Preferably more than one and never from a school. Make sure it's someone you pay directly, NOT a school counsellor. I appreciate you wanting depressed people to seek help, but sometimes dealing with it yourself is better than dealing with the system.
I would highly encourage anyone feeling depressed to seek counseling, and for the most part school mental health services are a safe and welcoming place to find help. With that being said, DO NOT share information about your mental health status with non-medical staff at school, as they are not bound by the same rules as physicians and can act on that information. My (unsubstantiated and hopeful) guess is that this is likely what actually led to this student's dismissal.