Student Loan Borrowers Say They Were Defrauded

Inside Subprime: August 6, 2019

By Jessica Easto

On June 25, a lawsuit against the US Department of Education Secretary Betsy DeVos was filed by more than 150,000 former for-profit college students, alleging that they are legally entitled to student loan debt relief and that the DoE is preventing them from being awarded what is due.

According to reports, about 160,000 people and counting, mostly those who have attended for-profit schools, have filed grievances with the government alleging that their schools have defrauded them. There are about 7,000 for-profit schools in the United States, which account for 15 percent of all federal student financial aid.

However, these claims have gone unanswered. The DoE has not processed what’s called a “borrower defense” claim since June 2018—more than a year ago. In 2017, an audit by the Department of Education’s Office of Inspector General revealed that government employees working on such claims were told not stop submitting applications for approval.

Borrower defense is part of an Obama-administration regulation that forgives debts to eligible students whose institutions “misled them” or “engaged in other misconduct in violation of certain laws,” such as predatory lending.

“The law is clear: Students who experienced fraud should not be required to pay back federal loans that should never have been made by the Department in the first place,” said Toby Merrill, director of Harvard Law School’s Project on Predatory Student Lending, the organization representing the plaintiffs in this case.

Last year, a federal judge ruled that Devos’s delays were unlawful. However, advocates for the students say that borrower defense claims still aren’t being processed. Meanwhile, the DoE maintains that it is ready and able to process claims.

“The only thing stopping the Department from finalizing thousands of these claims is the constant stream of litigation brought by ideological, so-called student advocate special interests,” said Liz Hill, spokesperson for the DoE.

Advocates, such as Barmak Nassirian, the director of federal relations at the American Association of State Colleges and Universities, think the DoE needs to start processing applications as quickly as possible. Thousands of students are still in limbo with massive debts to their name and no way to pay for it.

“These folks need relief desperately,” Nassirian said. “Their lives are on hold.”

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