Yesterday, the Department announced an important first step toward fixing the badly broken borrower defense program by rescinding the deeply flawed and unsupported “partial relief” policy adopted by former Secretary DeVos. The Borrower Defense rules were intended to provide relief for borrowers who took on federal student loan debt to attend schools that used deceptive and predatory tactics to enroll students and gain access to their federal student aid dollars, and then left the students with mounds of debt and often worthless degrees. However, as we have discussed in earlier blog posts, regulatory changes (see posts here, here, and here), foot-dragging, and policy positions adopted during former Education Secretary Betsy DeVos’s administration meant that few eligible borrowers were actually approved for relief, and many of those that were approved received only a tiny reduction in their loan balances.
The partial relief policy significantly curtailed relief to borrowers whom the Department found had valid defenses to repayment of their loans. Under the policy, few defrauded borrowers received complete debt relief even though the Department acknowledged that the school engaged in deceptive and predatory recruiting at the expense of students. Some defrauded borrowers received no relief, and many others received a minimal reduction of their debt burden, leaving many still in default and financially devastated by loans that were the product of fraud.
Yesterday, the Department announced it is rescinding the former policy. The Department recognized that the policy was flawed in that it failed to properly measure or redress the harm borrowers suffered.
For borrowers whose borrower defense claims have already been granted, the Department has announced it will:
- Provide full cancellation of relevant outstanding federal student loan balances,
- Remove negative credit histories associated with the cancelled loans, and
- For borrowers who were in default, restore their eligibility for federal student aid.
Additionally, for some borrowers with approved claims, the Department will provide refunds of amounts already paid on the loan or seized from borrowers. Unfortunately, the Department has interpreted current regulations as preventing it from refunding amounts previously paid or seized on some of these fraudulent loans based on when the applicants filed their applications for relief. As we remarked when the Department first created this barrier to refunds in 2016,
It is outrageous that the Department would penalize these borrowers for not submitting their borrower defense claims sooner, when they couldn’t submit sooner because the Department has only now created a submission process 20 years after the right to the borrower defense was established. If the Department finds that borrowers with outstanding loans were defrauded, and is only now accepting applications for relief, it should not limit relief based on how long it took to set up a process for applying for relief. The Department should reconsider the fairness of that approach and the efficiency of researching the statute of limitations applicable to every claim and defense in every state, and to instead exercise its authority to simply provide full relief to borrowers it finds were defrauded.
All in all, the Department projects that its action to provide full relief to borrowers with previously approved borrower defense claims will result in cancellation of approximately $1 billion in student debt. This is cause for celebration, but also concern: the impacted borrowers have been struggling for years under the tremendous weight of this invalid debt, and the relief extended only captures a tiny fraction of borrowers harmed by predatory practices and left with mountains of debt and worthless degrees.
What happens to borrowers waiting for a decision, who attended schools where the Department issued findings of wrongdoing, or who have received a denial?
Substantial work remains for the Department to make things right for all borrowers who have been wronged by their school and by failed oversight of the federal student aid program. Unfortunately, as of today the Department has only committed to providing complete loan relief to borrowers previously approved for relief and has declined to commit to providing full relief to borrowers with approved defenses going forward.
More generally, the Department has remained silent on what it intends to do for the hundreds of thousands of borrowers who either are still awaiting a decision on a borrower defense claim or who recently received what a federal court described as a “perfunctory, alarmingly-curt denial.” Additionally, the Department has not made any commitment to providing relief to the tens of thousands of other Corinthian and ITT students who were subject to the widespread predatory misconduct previously identified by the Department, but who have not filed individual borrower defense application paperwork. Nor has it committed to investigating and providing group relief to students who have attended other schools known to have engaged in misconduct. Clearly, this announcement is only the first step of many that are urgently needed to address the borrower defense disaster.
The borrower defense process is badly broken, and hundreds of thousands of struggling borrowers who have filed borrower defense claims since 2015 are still waiting for decisions or recently had their claims unfairly rejected in perfunctory form denials. The Department must act now both to provide long-overdue relief to borrowers who have been hung out to dry over the last four years, and to fix the process and the rules going forward. The Department is responsible for the federal student loan program at the root of this crisis, and it must act to stop for-profit schools from preying on students for their student loan dollars and to ensure people loaded up with loans by these predatory companies get the relief they need.
