Students who attended colleges that have misled them have the right under the law to have their federal student loans discharged, but over the past few years, accessing that relief has been nearly impossible, despite evidence of malfeasance by their schools, new documents suggest.
More than 200 borrowers who attended a school where an admissions representative pled guilty to making a false statement in an application for federal student aid had their applications for relief denied by the Department of Education, according to the documents.
The result: Since December 2019, roughly 90% of borrowers who say they’ve been scammed by their schools have had their applications for student loan relief denied, according to an analysis of government data by Harvard Law School’s Project on Predatory Student Lending.
The revelations about the challenges borrowers face accessing relief were contained in court documents filed Thursday evening as part of a class action lawsuit filed by The Project on Predatory Student Lending on behalf of 170,000 former students who’ve applied for borrower defense — the process borrowers can use to have their federal debt discharged if they’ve been misled by their school — but have had their applications stalled or denied.
Some of the borrowers have been waiting since before the Trump administration to get a fair and impartial hearing on their claims.
The documents provide insight into the Department of Education’s approach to evaluating borrowers’ claims for relief under former Secretary of Education Betsy DeVos. The Biden-era Department of Education has started to reverse course on some of these policies. Its first step in that process, announced Thursday, the agency will discharge an estimated $1 billion in debt for 72,000 borrowers as part of that effort.
But the documents filed Thursday highlight the thousands of borrowers who are still waiting for relief and the obstacles they’ve faced trying to get it. Toby Merrill, the director of Harvard Law School’s Project on Predatory Student Lending, said some of the borrowers have been waiting since before the Trump administration took office to get a fair and impartial hearing on their claims.
“I’m certainly hopeful that the new administration will take more seriously the rights of borrowers than the last administration, it’s a pretty low bar,” she said. “Our clients aren’t in a position to stop pushing for that.”
Documents reveal inner-workings of claims evaluation process
The documents filed Thursday evening include new information obtained in discovery as part of the suit. They reveal some of the inner-workings of the group charged with evaluating borrower defense claims.
In one August 2019 memo related to quality control involved in the application evaluation process, a Department of Education staffer wrote that the bar was high for approving claims from students who attended schools where criteria did not already exist for evaluating claims. “The majority of applications will be denied” in those cases, the staffer wrote in a memo.
In addition, the agency urged those evaluating claims to review an average of five applications per hour. Those we went even quicker were eligible for comp time and/or overtime, according to the documents.
The documents also suggest that even in cases where the agency had evidence of wrongdoing at a school, they found it was insufficient to justify granting relief to borrowers. For example, admissions representatives at one school where former students applied for relief were found to have created and accepted false high-school diplomas or GEDs to obtain federal financial aid for the school.
In other cases, borrowers applied for relief after attending schools that were facing or had faced lawsuits and investigations from other government entities, but the Department found the evidence was insufficient to entitle those borrowers to relief.
Hundreds of claims of the same nature from borrowers also weren’t enough to justify granting relief, according to the documents. At one school, 315 out 375 applicants said their school misled them about employment prospects, but the agency noted that while the allegations may be relevant to borrower defense, the borrowers didn’t provide supporting evidence for their claims.
The burden of proof for relief
The government has faced pressure for years from borrowers, activists and advocates to discharge the debts of borrowers who were scammed by their schools. Though on the books since the 1990s, the borrower defense provision was rarely used until 2015, when borrowers, organized by activists began clamoring relief under the law.
Many had attended Corinthian Colleges, a for-profit chain that collapsed amid allegations it misled students about job placement and graduation prospects. The next year, another for-profit college chain, ITT, filed for bankruptcy amid similar allegations.
Towards the end of the Obama administration, the Department of Education streamlined the process borrowers could use to access relief under borrower defense, amid the pressure from borrowers and activists.
Under Betsy DeVos, the agency heightened the burden of proof for relief under the law and implemented a rule that used earnings data to determine how much harm a borrower experienced.
But under DeVos, the agency heightened the burden of proof for relief under the law and implemented a rule that used earnings data to determine how much harm a borrower experienced and therefore how much relief they were entitled to. The agency under her leadership had said their approach would save taxpayers money and correct the “overreach” by the Obama administration.
On Thursday, the Department of Education announced it would discharge the loans in full of borrowers whose applications for relief were approved but only received a partial discharge of their debt when the agency was led by DeVos. They also said the agency wouldn’t use the partial relief methodology to evaluate how much borrowers are entitled to going forward.
“This is the Department’s first step in addressing borrower defense claims as well as the underlying regulations,” the agency said in a release announcing the change. “The Department will be pursuing additional actions, including re-regulation, in the future.”
A senior Department official also told reporters last week that there is a backlog of claims as well as claims that were denied by the previous administration that the Department plans to review, but didn’t have any announcements about the agency’s approach to those claims yet.
Many borrowers waiting on their claims are frontline workers
Merrill and others have called for an overhaul of the borrower-defense process. She described it as a “safety valve” for students and for the student-loan program as a whole. Former students applying for relief under borrower defense attended schools that the government allowed to access federal financial aid funds in the first place.
In the years since the borrowers who are part of the class have applied for relief, many have continued to struggle economically, particularly in light of the COVID-19 pandemic and associated economic downturn.
In a survey of more than 425 class members, the Project on Predatory Student Lending found that over one-third of borrowers had applied for unemployment benefits in the last year. In addition, 47% are frontline or essential workers, including delivery drivers, postal service workers and transit workers.
“These people who have been cheated by their school, cheated by the government and by and large are among the most deeply affected by COVID, there’s a unique harm to them,” Merrill