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Borrower Defense: Birth, Death, and Resurrection

by Deedra Abboud in Political, Social Views, Solutions
October 1, 2022 0 comments

Since President Biden took office, the Education Department has used the Borrowers Defense and school closing rule to discharge $14.5 billion in debt for 1.1 million borrowers from just under 160 institutions, nearly all of which were for-profit colleges.

As of August 30, the Education Department has utilized targeted relief programs resulting in $34 billion in discharges for 1.7 million borrowers.

In June 2022, the Department of Education agreed to pay borrower defense claims dismissed under former Education Secretary Betsy Devos’s marked obstruction of the student protection and relief program.

When Congress passed the Student Loan Reform Act in 1993, it explicitly recognized students’ “borrower defense to repayment” rights.

Furthermore, Congress provided specific, targeted relief to alleviate the burden of student loan debt for cohorts of borrowers experiencing various types of distress.

If the system failed, Congress intended tens of millions of debtors to gain assistance.

Lawmakers pledged redress to borrowers who predatory schools had defrauded.

They ensured a fresh start for those whose financial difficulties have lasted decades and those who forego private-sector pay to serve our country or our local communities.

They assured borrowers that they would not have to worry about events beyond their control, such as unexpected school closures or the onset of a permanent disability.

Congress gave the executive branch the authority to implement broad-based cancellation when necessary.

The settlement, if approved by a federal judge in November, will conclude the class action case Sweet v. Cardona and deliver $7.5 billion in debt relief to 264 thousand borrowers who attended one of the 150+ for-profit institutions accused of substantial misrepresentations.

The case also created a post-class position for applications submitted before November 3, 2022, ensuring those applications are thoughtfully reviewed and decided within three years or receive an automatic full discharge.

Under President Trump’s education secretary, Betsy DeVos, a wealthy Republican donor with minimal expertise in public education and strong opposition to the relief program, the program all but ceased to exist.

During the period from 2017 to 2020, the Trump administration refused to intervene in several federal cases brought by students and professors alleging that for-profit schools were defrauding the federal student loan and Pell Grant system.

In 2018, Secretary DeVos stated in an interpretive advisory that the federal government has the sole authority to supervise and monitor federal student loan servicers. Thus any state regulations on the subject are preempted, attempting to bar state Attorney Generals from investigating for-profit schools defrauding students in their own state.

Also in 2018, Mick Mulvaney, the interim director of the Consumer Financial Protection Bureau (CFPB), placed the agency’s student loan division into its consumer information branch, dampening the agency’s eagerness to pursue an enforcement case against Navient, the nation’s largest student loan collector already found by state Attorney Generals to have committed unfair and illegal practices.

The CFPB then removed the topic “student loan servicing” from its bi-annual long-term regulatory agenda, indicating its desire to shift away from investigating student-lending issues.

Over the next two years, Trump’s Justice Department filed a statement of interest in various cases brought by state Attorney Generals, again asserting that states are barred from suing federal loan servicers due to preemption.

In December 2019, the Education Department’s inspector general issued a report stating that from January 20, 2017 to November 30, 2019, the department did not approve a single borrower defense claim.

Less than a week later, following several lawsuits, Secretary DeVos proposed a sliding scale that provided only partial debt relief to some student loan borrowers who their schools had defrauded, and fully forgive debts only if defrauded students in a particular program earned far less than those in similar programs at other schools – an arbitrary methodology tying legal injury to current earnings that limited relief to those who had been most seriously harmed and resulted in a large portion of claims being denied.

Six months later, in one of the most egregious examples of those efforts, a whistleblower at the Education Department came forward with evidence of a top political appointee attempting to sabotage the development of a new website that allowed defrauded borrowers to apply for debt relief, claiming it made the application process “too easy.”

Which led to the Sweet v DeVos turned Sweet v. Cardona Class-Action lawsuit.

“By September [2018], 139,021 applications [for loan discharge for defrauded borrowers] awaited review. That count rose to 158,110 by the end of December [2018], and to 179,377 by the end of March 2019. By June 2019, borrowers had filed 272,721 applications and 210,168 languished. For eighteen months, from June 2018 until December 2019 . . . the Secretary issued no decisions at all.” Sweet v. DeVos, No. 19-cv-03674-WHA (N.D. Cal. Oct. 19, 2020)

According to Education Department officials in 2021, the Trump-era formula created a very high, if not impossible, bar for borrowers to be authorized for full relief and, in some circumstances, refused relief entirely.

Borrower defense is fail-safe against loans that should never have been made in the first place and were only made because a critical actor in the system—the institution, the accreditor, and/or the Department of Education (ED)—did something wrong or neglected to do something right.

These safety valves, however, were sabotaged, with crushing and unfair consequences.

Education Secretary Miguel Cardona then replaced DeVos’ sliding scale with a streamlined strategy that will provide complete relief to qualifying borrowers faster.

The Department has re-established an enforcement agency inside Federal Student Aid to conduct investigations into higher education institutions and propose future guidelines to hold career schools accountable for leaving their graduates with unsustainable debt and poor employment prospects—a provision that the previous Administration had reversed.

The Department is also holding accreditation agencies responsible for oversight of academic quality at institutions, withdrawing federal certification of the Accrediting Council for Independent Colleges and Schools (ACICS) in August.

As a result, universities currently recognized by the ACICS will be required to meet extra operational requirements to retain participation in federal student aid programs. Several of the worst perpetrators in Borrowers Defense claims had been accredited by ACICS.

Borrower defense is the federal government’s only loan forgiveness program for former students deceived and defrauded by their schools.

It only applies to Direct Loans, including Direct Consolidation Loans that paid off Federal Family Education Loans (FFEL) or Perkins Loans.

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