Tens of thousands of borrowers have submitted so-called “borrower defense” claims to the Department of Education, alleging that their loans should be discharged because of misconduct by their schools. The theory is that if your school mislead you, or was acting fraudulently, you shouldn’t have to pay the loans you took out to go to those schools. Sounds sensible, right? The problem is that many of these defense claims are just sitting there and aren’t being processed, all the while student borrowers end up at the whims of their servicer. If you have been waiting for years for your borrower defense claim to be processed, know that you’re not alone.
In this post I’ll give some background on the situation and provide an update on some pending litigation to try to address these issues. In my next post on the topic, I’ll go further into depth on what we do know about how the Department of Education is handling these claims.
To understand the big picture, we need to go back to 2015 when the closing of Corinthian Colleges and exposure of misconduct by other for-profit schools lead to a sky-rocketing number of these borrower defense applications. (The Department of Education states that in the in the twenty years prior to Corinthian’s closing, they received a mere five borrower defense applications. Since 2015, they have received over fifty thousand.).
As this explosion in the number of borrower defense claims happened, the Department of Education was simultaneously engaging in a rule-making process that was supposed to lay out the parameters for how these claims would be processed. After pain-staking negotiation, the rules were finalized and set to go into effect in July 2017. However, the DeVos Department of Education delayed the effective date of these rules, citing pending litigation. Many people felt that this was instead an effort to get a second bite at the apple or, at the very least, shield for-profit universities from stricter Obama-era rules.
The Department of Education has now restarted the rule-making process. Meanwhile, it is sitting on the majority of the borrower defense applications it received.
The Department of Education’s version is that they have been improving the borrower defense process and that they have been steadily processing applications, particularly those associated with Corinthian College. Again, I’ll go into further detail on this in my next post.
Nevertheless, tens of thousands of applications are still sitting there. Lawyers at the New York Legal Assistance Group and the Harvard Predatory Loan Project initiated a lawsuit against the Department of Education, alleging that the Department was neglecting it duty to process these applications. (Full disclosure that I briefly worked with these lawyers during law school). The lawsuit is brought on behalf of two borrowers who attended Sanford-Brown institute. Both borrowers have had borrower defense applications pending for 3 years. In the meantime they have been subject to the collection whims of their servicers while interest continues to accumulate on the loans. The lawsuit alleges that Sanford-Brown violated New York law by misleading its students.
The Department of Education has moved to dismiss the lawsuit, alleging that it has sovereign immunity and that the borrowers have not exhausted their administrative remedies. The Department has also requested that the lawsuit be moved to arbitration.
I follow this lawsuit as part of my docket monitoring service for industry professionals. If you wish for additional updates on this case, please contact my office.
DISCLAIMER: THIS BLOG POST IS NOT LEGAL ADVICE AND DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP BETWEEN THE READER AND MAURER LAW LLC. SEEK LEGAL ADVICE IF YOU HAVE PARTICULAR QUESTIONS ABOUT YOUR STUDENT LOANS.