The glacial pace of approvals was detailed in a letter sent to Durbin this month by acting undersecretary James Manning in response to an inquiry about the processing of claims.
By law, students can apply to have their federal loans discharged if their college used illegal and deceptive tactics to persuade them to borrow money to attend. The statute has become a last line of defense for many former students of defunct for-profit schools ITT Technical Institutes and Corinthian Colleges. Both schools spent their last few years clouded by allegations of fraud, deceptive marketing and steering students into predatory loans. Consumer advocates had hoped the evidence in the state and federal cases against the schools would create a clear path for loan discharge, but many applicants continue to wait for an answer.
Through July 7, the Education Department had 45,092 pending claims from students who attended Corinthian and another 7,186 pending claims from former ITT Tech students, according to the letter. The remaining claims come from people who pursued degrees or certificates at other for-profit schools such as DeVry University and the University of Phoenix. All of those borrowers with pending claims have accrued about $143 million in interest on their loans during the waiting period.
“There are thousands more borrowers out there who have been defrauded by Corinthian, ITT Tech and other for-profit colleges and are now seeking the relief to which they are entitled under the law. The department can’t ignore these borrowers any longer,” Durbin said, in a statement.
Many applicants placed their loans in forbearance, a grace period that they can extend while waiting for approval. The department said the forbearance period has expired for fewer than 50 applicants, but 31,000 others are at risk in the next six months without an extension. If those loans fall back into repayment and the borrowers cannot afford to cover the monthly bill, they could become delinquent, end up in default and have their wages garnished.
“With the large backlog of claims we inherited from the Obama administration, we are working diligently to set up a process to start approving claims again,” said department spokeswoman Liz Hill.
She said she understands the frustration of applicants awaiting a response and is confident that the department will sort through many of the claims in the coming months.
Liberal lawmakers and advocacy groups have complained of the Trump administration keeping stakeholders in the dark about its progress. Education officials no longer issue reports to the public, or even senior department officials, detailing the status of claims. Manning explained that “no recurring reports are being provided pending the review of the borrower defense process by the new administration.”
The future of the borrower defense statute is up in the air. The rule was revised last year to speed up and simplify the claims process and shift more of the cost of discharging loans onto schools. But before those changes could take effect July 1, Education Secretary Betsy DeVos suspended them and said she would convene a committee to reconsider the matter. DeVos said delaying the rule would have no impact on the claims in the pipeline, but the data released to Durbin has cast doubts.