Courts cleared way for student debt relief; 180,000 people still waiting for answer

Courts have sided repeatedly with student loan borrowers demanding that the U.S. Education Department process their applications for debt relief, yet more than 180,000 people are still waiting for a decision. Now, some of them are again turning to the courts for help.

On Tuesday, seven borrowers sued Education Secretary Betsy DeVos and her agency after the department didn’t take action on their applications, some of which have languished at the agency for years.

The Education Department did not respond to requests for comment.

The federal agency has not approved or denied an application for debt relief in a year. People familiar with the process, who were not authorized to talk publicly and so spoke on the condition of anonymity, said more than 180,000 applications for debt relief are sitting at the department. Nearly 10,000 of them were filed more than three years ago.

“It’s not like they’re working through the backlog and it’s just taking time,” said Eileen Connor, an attorney representing the borrowers. “The department doesn’t think they have to do anything with these claims, and that’s why people are coming forward. What they want is for the court to tell the department: ‘You have to do something. You can deny them. You can grant them. But you have to do something.’ “

A 1995 law, known as “borrower defense to repayment,” gives the Education Department the authority to erase the federal debt of students whose colleges defrauded them. The Obama administration updated the regulation to shift more of the cost of forgiveness onto schools, after the closure of for-profit giant Corinthian College ushered in a flood of claims.

DeVos delayed and then suspended the implementation of the rule. The education secretary had said about the rule: “All one had to do was raise his or her hands to be entitled to so-called free money.” Then, the department began using earnings data to grant partial loan forgiveness to former Corinthian students.

Those actions resulted in federal lawsuits and subsequent judicial rebukes of the Education Department. Still, court orders blocking the Trump administration’s approach have yet to yield much for borrowers.

Instead, the department is using one of those orders as a rationale for not moving forward on mounting claims. Diane Auer Jones, the department’s principal deputy undersecretary, told lawmakers in April that a court decision barring the use of earnings data to award partial relief to former Corinthian students had hamstrung the agency.

“We are not able to determine the level of harm or level of relief a borrower should get, because the methodology we have used is being blocked by a California court,” Jones said at a House Oversight and Reform subcommittee hearing.

As a result, Jones said, the department could not commit to a timeline for processing applications. People familiar with the discharge applications say nearly 23,000 are teed up for loan cancellation.

Connor, director of litigation at the Project on Predatory Student Lending at Harvard University’s law school, argues that the court injunction does not prevent the Education Department from creating a new methodology to deny claims or grant full relief. The Project on Predatory Student Lending brought the California case.

Applicants have endured long waits that, for many, started under the Obama administration. One of the plaintiffs in the case, Jessica Jacobson, submitted her claim against the for-profit New England Institute of Art in 2015. The school was the subject of state investigations into alleged misleading and aggressive sales tactics before it stopped enrolling students in 2015.

Another plaintiff, Tresa Apodaca, submitted her application for debt relief a month after Corinthian closed its doors in April 2015. She amassed $30,000 in federal loans to attend Corinthian’s Heald College, where she said she was told that 98% of graduates landed jobs in their fields. The Education Department cut off Corinthian’s access to federal funds because the school lied about job placement rates.

There are consequences for those languishing in debt relief limbo. Although the federal government is supposed to grant temporary postponement of loan payments while applicants await a decision, Connor said some of her clients are still receiving bills or having their wages garnished.

Even if the Education Department began processing the backlog of claims in earnest, the agency would need far more staff members to handle the volume. The borrower defense unit, responsible for reviewing claims, had six full-time employees in June 2018, when there were nearly 100,000 claims pending review, according to court documents. Several contractors are assisting, but their duties are limited.

The Education Department no longer consults with state attorneys general who supplied some of the evidence needed to process claims against Corinthian, they say. The department could process claims faster, they say, if it reestablished lines of communication. But for now, everything remains at a standstill.

“It’s outrageous that the department is ignoring these claims,” said Connor, who is working alongside Housing and Economic Rights Advocates, a nonprofit legal service, on Tuesday’s lawsuit. “Borrowers have rights. They’re invoking their rights, and the government isn’t responding to them.”