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DeVos reaches settlement over stalled student debt relief claims

Education Secretary Betsy DeVos has reached an agreement to process nearly 170,000 student debt relief claims within 18 months. (Melina Mara/The Washington Post)

The Trump administration has agreed to process nearly 170,000 debt cancellation claims within 18 months from borrowers who say they were defrauded by their colleges.

The proposed settlement agreement, filed in U.S. District Court in California on Friday, stems from a class-action lawsuit brought against Education Secretary Betsy DeVos and her agency in June by a group of borrowers awaiting decisions on their applications, some for as long as five years.

The courts cleared the way for DeVos to grant student debt relief. So why are 180,000 people still waiting for an answer?

A 1995 law, known as “borrower defense to repayment,” provides federal loan forgiveness to students whose colleges lied to get them to enroll. The Education Department has been inundated with claims from former students of defunct for-profit chains Corinthian Colleges and ITT Technical Institutes. Both spent their final days fighting state and federal lawsuits over alleged fraud, deceptive marketing and steering students into predatory loans.

After taking office, DeVos refused to approve or deny applications for debt relief, saying her administration needed time to review the process created under the Obama administration. Tens of thousands of claims piled up before the secretary decided to grant partial debt relief, which led to a lawsuit from former Corinthian students. DeVos said the case ground the system to a halt. But borrowers argued that it had no bearing on their applications and took legal action against the secretary.

“It is outrageous that students who were cheated by their school have had to go to court and fight for years, across multiple administrations, to get the Department of Education to consider their requests to discharge their bogus loans,” said Toby Merrill, director at the Project on Predatory Student Lending, a legal-aid group representing the students. The organization worked alongside Housing and Economic Rights Advocates, a nonprofit legal service.

If Friday’s settlement is approved by the court, the Education Department would have a year and a half to clear out the backlog of claims, except for those tied to the Corinthian case. The agency must also cancel any interest that accrued on the loans while the applications were pending.

“This proposed settlement would be an important win for students and for taxpayers,” said Angela Morabito, a spokeswoman for the Education Department. “Rather than have their claims needlessly delayed by unnecessary litigation, students will now have their cases adjudicated promptly.”

Borrowers who are still waiting for a decision after 18 months would get 30 percent of their federal loans discharged for every month that the department is late. If the agency garnishes their wages or seizes their tax refunds before issuing a decision, the borrowers would be entitled to have 80 percent of their loan discharged, according to the settlement. Applicants retain the right to challenge the department’s decision about their claim.

The Education Department must produce quarterly reports with information such as the number of decisions made and the number of people approved for loan cancellation.

“Having the Department of Education be forced to put a time frame on making these decisions is vindicating,” Theresa Sweet, a plaintiff in the lawsuit, said in a statement. “People have been paralyzed with debt and forced to put their education, personal goals and financial plans on hold because we didn’t know if or when we might get a decision.”

Sweet, like many applicants, has been waiting for a decision since the Obama administration. She submitted her claim against Brooks Institute of Photography in 2016. Sweet amassed $46,107 in federal loans attending the California school, where she said she was told that 90 percent of graduates were employed right out of school. The for-profit college was the subject of numerous state investigations into alleged misleading and aggressive sales tactics before it shut down in 2016.

Another plaintiff, Jessica Jacobson, submitted her application for debt relief a few months before the New England Institute of Art stopped enrolling students in 2015. The for-profit school, which ultimately closed in 2017, was sued by the Massachusetts attorney general for lying about its job placement rates, costs of attendance and financial aid.

Obama officials granted relief to Corinthian students in waves, with the vast majority of approvals issued at the tail end of the administration. Advocates and lawmakers criticized the department for the glacial pace but had hoped the momentum would continue under President Trump.

House Democrats blast DeVos for blocking debt relief to defrauded students

After fits and starts, the Education Department resumed issuing approvals and denials in December, using a sliding scale based on a borrower’s wages to determine loan forgiveness. Higher-education experts say the formula will result in substantially less loan cancellation than before. Mark A. Brown, chief operating officer in the department’s student aid office, told Congress in December that the agency hoped to clear the backlog of claims within 12 months.

As of February, the Education Department had received a total of 315,366 applications for debt cancellation. Of those, 55,830 have been approved for relief, while an additional 30,074 have been rejected, according to the department.

Morabito defended the department’s formula Friday as “a sound adjudication methodology.” She said the proposed settlement is a “validation of that process and of the department’s long-standing goal to resolve all of these claims as quickly as possible.”