For the past several years, students who believe they’ve been scammed by their colleges have waited in limbo while policy makers and industry stakeholders determine their fate.
This week provides a vivid reminder of their plight.
Starting Monday, the Department of Education will convene a group of representatives from a variety of sectors to develop a rule for how and when these borrowers can have their federal student loans forgiven. But the months-long series of meetings is essentially a do-over of a similar session that took place last year. The process known as “negotiated rule-making” resulted in regulation that was scheduled to take effect last summer.
How did this happen? The Trump administration’s Department of Education took several steps this year to delay implementation of the Obama-era rule. It was supposed to take effect last summer. It didn’t.
‘There are tens of thousands of borrowers who have submitted applications who are hearing nothing. They have no idea what’s going on with their application.’
Abby Shafroth, an attorney at the National Consumer Law Center
And now a group of attorneys general as well as public interest attorneys are suing the Department over the delays.
Meanwhile, borrowers are waiting for relief.
“There are tens of thousands of borrowers who have submitted applications who are hearing nothing,” said Abby Shafroth, an attorney at the National Consumer Law Center. “They have no idea what’s going on with their application and they’ve been waiting for months or even years and, in the meantime, they’re weighed down by these student loans.”
Borrowers’ right to relief stems from a law on the books since the 1990s, known as borrower defense to repayment. The law gives federal student loan borrowers the right to have their debt canceled if their school committed fraud.
But few borrowers took advantage of the regulation until 2015 when the collapse of a large scale for-profit college chain amid whiffs of fraud sent thousands of students clamoring for relief. That school, Corinthian Colleges, filed for bankruptcy after allegedly luring students with misleading job placement and graduation rates.
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The government and consumer advocates are at odds over the delay
Now, as stakeholders sit down to debate the merits of the rule once more, the future of borrowers’ access to relief remains uncertain.
Secretary of Education Betsy DeVos has defended her Department’s delays of the rule, arguing that it was “rushed” through and made it relatively easy for borrowers to get “ so-called free money .” Liz Hill, a Department spokeswoman added, in a statement, that the rule resulted in a “muddled practice that’s unfair to students and schools and puts taxpayers on the hook for significant costs.”
Industry representatives agree. Steve Gunderson, the chief executive of Career Education Colleges and Universities, a for-profit college trade group, said in a statement that he applauds the Department’s efforts to review the regulations, adding that he hopes stakeholders will set aside “strident ideologies” when developing the new rule.
“We hope for changes such as designing a process that provides clean, quick resolutions of student claims while protecting both students and schools, and limiting the rule to its intended purpose,” he said.
But consumer advocates say the delays are simply a pretext for the Department to try to deny borrowers access to relief they’re entitled to under the law. Toby Merrill, the director of Harvard Law School’s Project on Predatory Student Lending, described the new rule-making process as “regulatory theater.”
“I don’t think that the Department is acting in good faith on behalf of borrowers,” she said. “This administration has only ever sided with the predatory for-profit college industry against borrowers — including against borrowers’ legal rights.”
‘I don’t think that the Department is acting in good faith on behalf of borrowers. This administration has only ever sided with the predatory for-profit college industry against borrowers.’
Toby Merrill, the director of Harvard Law School’s Project on Predatory Student Lending
Over the weekend, Merrill doubled down on the position that the rule-making meetings this week have little relevance to whether borrowers are legally allowed to have their loans wiped away. Her organization along with another public interest law firm, filed a lawsuit against the Department of Education and Navient, a student loan servicer, on behalf of two borrowers who attended a for-profit college in New York.
The borrowers, Tina Carr and Yvette Colon, submitted requests to the Department and Navient o have their loans forgiven. This was based on evidence substantiated by the New York attorney general, which indicated that their school used misleading tactics to convince them to enroll, according to the suit. But nearly three years later, they have yet to have their loans wiped away, despite their legal right to forgiveness, the suit claims.
A Navient spokeswoman wrote in an emailed statement that the Department has the authority to approve or deny forgiveness claims, not servicers. A representative from the Department didn’t immediately respond to a request for comment on the suit.
Some worry students will lose the right to bring class-action lawsuits
Adam Pulver, an attorney at Public Citizen, a consumer rights advocacy group, is particularly concerned about one measure in the 2016 rule that bans colleges from requiring students as a condition of enrollment to waive their rights to sue their schools in court or bring class-action lawsuits.
Some consumer advocates are concerned about one measure in the 2016 rule that bans colleges from requiring students to waive their rights to sue their schools in court or bring class-action lawsuits.
For-profit colleges routinely mandate students sign a clause as part of their enrollment agreement, which would require them to settle any disputes with the school in arbitration, a closed process that consumer advocates say puts companies at an advantage over students or consumers.
However, the Obama-era rule banned colleges that receive federal financial aid from taking part in this practice — a provision Pulver said he’s concerned is on the chopping block. “The administration is very much in favor of protecting companies and their abilities to keep people from pursuing remedies in court,” he said.
Indeed, the Department has already indicated that officials want stakeholders to reconsider the arbitration clause ban.
Preventing students from taking their claims to court could be a problem not only for the students, but also for taxpayers, Shafroth said. Allowing students to file lawsuits in the public domain alerts officials to malfeasance and, ultimately, limit the number of students clamoring for debt-relief. What’s more, the threat of being brought to court could discourage companies from engaging in misconduct.
Shafroth said she’ll also be watching to see whether negotiators attempt to change the standard of evidence required of borrowers to prove their claims. Right now, borrowers are required to prove it’s more likely than not that they’ve been ripped off to have their debt forgiven.
Concerns linger about further legal wrangling over this issue
Shafroth said she’s also troubled by reports that the Department is considering granting students partial relief of their claims. Trying to evaluate whether someone received a benefit from an education they were duped into paying for doesn’t make much sense, she added. By an accident of timing, some might get access to less relief than others.
“We’re talking about a group of students who’ve already been scammed,” she said. “To nickel and dime them, and say we think that your education might have actually been worth $2,000 rather than $8,000 — it’s speculative and it’s unfair.”
Shafroth is representing the legal aid community in the negotiations, a group that regularly hears the woes these borrowers face. It isn’t uncommon for a borrower to come to a legal aid lawyer as his or her earned-income tax credit — a tax credit for low-income working filers — is seized to pay for a debt he or she took out to attend a school that lured her using false pretenses, she said.
Carr, one of the women who filed a lawsuit over the weekend, had her car repossessed, her credit ruined and experienced homelessness after she went into default on $18,590 in student loans. She took on the debt to obtain medical assisting associates degree that had little power in the labor market, despite promises from her school about future salary and job placement.
Merrill said the law is on her side. But that could be of little consolation to students waiting for a decision on their student loan debt relief. It’s difficult to survive with fraudulent student debt eating up big chunks of an already diminished income, she added.