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Defrauded borrowers sue over six-year-old student-debt-relief claim

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A class-action lawsuit by fraud victims of for-profit colleges says the Education Department has been assessing their claims far too slowly, with some petitioners still awaiting relief six years later.

The Biden administration is working through a mountain of claims from former students of for-profit schools requesting that the department cancel their debt under a statute known as “borrower defense to repayment.” Petitions piled up at the department after several colleges folded, and the Trump administration tried to limit and delay loan cancellations.

The Education Department received more than 400,000 borrower defense claims between 2014 and the end of 2021, according to the latest available data from the department. Education Secretary Miguel Cardona has approved $2 billion in discharges for 105,000 borrowers to date, but a lawsuit filed Monday says the agency could do more and much faster.

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The complaint, filed in U.S. District Court in Massachusetts on Monday, centers on an application submitted by the Massachusetts Attorney General’s Office in 2016 for roughly 100 former students of Kaplan Career Institute in the state. The group accused the now-defunct school of inflating job-placement rates and using aggressive sales tactics to get people to enroll in its medical billing and medical assistant programs between 2009 and 2012.

Those allegations were at the heart of a 2015 investigation by the attorney general that resulted in a $1.3 million settlement with Kaplan Higher Education, the parent company, which denied the charges. Kaplan, a subsidiary of Graham Holdings Co., which once owned The Washington Post, sold or closed dozens of Kaplan Career Institute locations around the time of the settlement.

State investigations of for-profit chains have routinely produced evidence of misconduct that the Education Department has used to approve individual debt-relief claims. Yet, when state prosecutors have filed claims seeking blanket relief for a group of students, the department has not acted.

Rather than sift through individual applications, consumer advocates say, the agency could clear out a backlog of borrower defense claims by granting group relief. Of the dozens of group claims submitted by attorneys general in the past six years, only one has been approved by the department.

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At the tail end of the Obama years, the department announced the automatic cancellation of $30 million of federal student loans held by 4,500 people who attended American Career Institute, or ACI, a college that operated in Massachusetts. While it took the government six months to respond to that group claim, attorneys for the former Kaplan students say their clients have heard nothing in six years.

“The agency’s inaction only fuels the financial insecurity of borrowers who have been through enough turmoil,” said Libby DeBlasio Webster, senior counsel at National Student Legal Defense Network, which is representing the Kaplan borrowers along with the Project on Predatory Student Lending and National Consumer Law Center. “While these claims didn’t originate under this administration, the agency has had ample opportunity under Secretary Cardona’s leadership to resolve this glaring issue.”

The Education Department declined to comment on pending litigation.

This isn’t the first time borrowers involved in a group claim have sought redress through the courts. Former Corinthian Colleges students in Massachusetts won a case against the Education Department and had their federal student loans canceled after six years of fighting for relief. Their group claim contained more than 2,700 pages of evidence from Massachusetts Attorney General Maura Healey chronicling aggressive recruiting tactics and falsified job rates, but the claim languished at the department for years.

A judge in the case said the department has a legal obligation to take action on group claims brought by state attorneys general, an argument the Kaplan borrowers are leaning on as they seek approval of their own application.

After initially defending an appeal in the case, which was brought during the Trump era, the Biden administration backed off and cleared the path for 7,200 people to have their federal student loans discharged.

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