Have you been affected by the delay in processing borrower defense applications? Have your story heard.

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Borrower Defense Application from the Department of Education

There are tens of thousands of borrowers have applied for what is called “borrower defense.”  These borrowers are arguing that they shouldn’t have to pay back their student loans because of fraud, forgery, or, in many cases, because of misdeeds by their school.

These borrowers went to places like ITT Tech or Corinthian Colleges, which were ultimately revealed to have a long track record of misleading their students.  These schools claimed the educations they offered would lead to better jobs and better salaries.  Instead, these for-profit schools left students in debt without the needed credentials to pursue their career.

Under federal law, borrowers have the option to apply for discharge because of these misdeeds, but the Department of Education hasn’t processed a single borrower defense application in more than a year.

Earlier this week, the Harvard Project on Predatory Student Lending sued the Department of Education this week for their failure to process applications.

Have you been affected by this issue? If so, you can participate in the lawsuit by submitting your testimony about your experiences with borrower defense. 


Corinthian College borrowers are being graded on a curve for student loan relief

Almost 100,000 student loan borrowers — already scammed by the notorious and now-shuttered Corinthian Colleges — are now being graded on the worst curve of their life.  Under a new set of calculations implemented by Betsy Devos’ Department of Education, whether of not they get their student loans canceled depends on how their classmates have done since graduation

The math behind the new approach is opaque, but one thing is clear: it needlessly denies debt relief to borrowers based on how well their classmates did and replaces a straight-forward program put in place under the Obama Administration.

Corinthian Colleges, Inc. was the umbrella organization for a suite of for-profit schools that operated from 1995 until 2015 when they shut their doors amid mounting allegations that they falsely inflated job placement rates and misrepresented programs to potential students.

As a federally certified school, Corinthian Colleges’ students could take out federal loans.  At the height of its operations in the mid-2000s, Corinthian Colleges received more than $1.5 billion in federal student aid and had tens of thousands of enrolled students each year.

When Corinthian’s misconduct became apparent in 2015, the Department of Education allowed students to apply for cancellation of their student loans under the borrower defense program.

Between December 2015 and April 1, 2018, more than 147,000 borrower defense claims were filed.  The outgoing Obama Administration used a simple and straight forward test to assess applications.  If the borrower had enrolled in the same program, at the same location, and the same time as Corinthian had made material misrepresentations, the borrower filed an attestation with the Department and had their loans cancelled.

Approximately 25,000 of those borrowers had their claims adjudicated before the Trump Administration came into office on January 20, 2017 and the process came to a screeching halt.  When applications began to be processed again later in 2017, a new system was in place.

Devos’ Department of Education had taken the entire cohort of borrowers who applied for cancellation and got the aggregate 2014 earnings data from the Social Security Administration, comparing it to the aggregate earnings data for other students in similar programs.  If a borrower’s cohort as a whole had done fairly well, each individual Corinthian student got less of their loans cancelled than if the cohort had done badly.

For instance, the cohort of Corinthian students who enrolled in the “Electrical/Electronics Equipment Installation and Repair, General” associates degree have about 50% of the current earnings of students in similar programs at other schools.  Under the new program, each borrower — no matter their individual earnings — will get 50% of their loans forgiven.

The cohort of Corinthian students who enrolled in the “Medical Office Management / Administration” associates program have between 70-79% of the current earnings of their peers, meaning they will get 30% of their loans forgiven, but the “Business Administration and Management, General” certificate-earners will get 100% of their loans forgiven.

The new math used by the Department of Education is troubling for many reasons: why should the amount of debt relief offered to students who were reeled in by Corinthian college be tied to the success of their peers?  There could be any number of factors affecting the cohort rate, such as the age of borrowers and the particular students who applied for cancellation.   The success of one’s peers across 20 years is an exceptionally poor way to measure the impact of material misrepresentations and fraud on any one person.

A lawsuit brought by Housing and Economic Rights Advocates and the Harvard Law School’s Predatory Loan Project on behalf of the class of Corinthian College students alleges violations of administrative procedure rules in the sudden switch of programs.  There are also allegations that the new program violates constitutional Due Process rights and is arbitrary and capricious.

The class members have sought a preliminary injunction, forcing the Department of Education to go back to the old system.  The Department of Education has opposed the preliminary injunction.  The District Court in California should rule soon.  In the meantime, every day interest continues to accrue on Corinthian College loans.


Note: Many of the citations for this article are from court filings that can be found via the federal court management system, PACER.  If for some reason you would like the documents that support this post, please let me know directly.  Some of them you can find for free online through the RECAP project.  Others I am in personal possession or you can access with your own PACER account.

Waiting for Your Borrower Defense Claim to be Processed? You’re Not Alone.

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.