The Key Characteristics of a Defense-to-Repayment Process that is Fair and Accessible to Borrowers

Over a year after the National Consumer Law Center and other borrower advocates first began calling on the Department of Education to relieve the heavy debt burdens of students harmed by the deceptive and illegal practices of Corinthian Colleges, the Department has taken a first step towards doing so. Last month, the Department appointed Special Master Joseph Smith to create a process allowing federal student loan borrowers to assert their schools’ illegal practices as a defense to repayment (DTR) of their federal loans.

Last week, we and a group of non-profit organizations that provide free legal services to low-income borrowers sent a letter urging Mr. Smith to establish a fair, efficient, transparent and accessible DTR process. The letter identifies criteria that are essential to a fair and just process for borrowers:

1. A uniform process for asserting defenses to all federal loans, including FFEL and Direct loans, consolidation and PLUS loans.
2. A DTR application that allows borrowers to easily assert violations of state and federal law, with the most common violations provided as checkboxes on a paper form or as pull-down boxes on an electronic form. Borrowers should be able to submit DTR applications without an attorney and without knowledge of consumer protection law, contract law, tort law, or other relevant law.
3. No supporting documentation requirements. Because borrowers will be asked to sign applications under oath, they will provide competent evidence of their enrollment and related facts.
4. Evaluation of all DTR applications within 90 days by a neutral arbiter.
5. Written determinations that explain all evidence relied upon, reasons any evidence presented was insufficient or disregarded, and the specific legal bases for the determination.
6. A requirement that the Department consult all available sources of information within its possession, including prior DTR claims and student complaints, as well as sources of information held by accrediting agencies and state or other federal agencies.
7. An easily accessible and searchable public database that includes the allegations and outcomes of all DTR claims that have been adjudicated.
8. A borrower right to seek reconsideration or appeal, as well as the right to reapply and submit additional information.
9. No procedural barriers that may have been implicated if a borrower were bringing an affirmative case in court, such as arbitration clauses and statutes of limitation.
10. The allowance of both state and federal law violations as bases for DTR claims. For the federal standards, an application should be granted if the school engaged in conduct that constituted a federal UDAAP violation (unfair, deceptive or abusive act or practice, 12 U.S.C. § 5531(a)), a violation of the Higher Education Act or regulations, or a violation of the Federal Trade Commission Guides for Vocational Schools.
11. The option of forbearance for borrowers with non-defaulted or defaulted loans, from the time the application is submitted through the final determination.
12. The liberal use of automatic discharges based on Department, state agency, or other federal agency findings and evidence that a school has violated state or federal law. When other state or federal agencies are involved, the Department should work with those agencies to identify the cohorts of borrowers entitled to relief.
13. A requirement that the Department initiate an investigation whenever it has evidence suggesting that a group of borrowers may be entitled to DTR relief. It should notify borrowers of its investigation and grant automatic discharges where appropriate.
14. Full loan discharges to all borrowers covered by a group process or who establish a defense to repayment, including a refund of any amounts paid on the loans and removal of all information regarding the loans from credit reports.

We hope that Mr. Smith will take our recommendations seriously and implement a process that truly implements Secretary Arne Duncan’s stated intention: “We are determined to protect students who have been victims of these unethical companies, by ensuring they get every penny of the debt relief they are entitled to, through a streamlined and straightforward process. We’re going to make that as simple as we legally can . . . .”