The department has the authority to discharge federal student loans when a college uses illegal tactics to persuade a student to borrow money, under a federal statute known as borrower defense to repayment. The team of attorneys working on the applications have flagged nearly 12,000 claims for approval and about 7,200 for denial. But acting under secretary James Manning has refused to sign off on any of those claims, saying the new administration needed time to review the policies put in place by its predecessor, according to the report.
In a letter responding to the inspector general’s report, Wayne Johnson, who heads the student aid office, said his team is working with other units within the department to strengthen protocols so that work on the claims can proceed. He said the discharge of some of the claims flagged for approval is “imminent,” but he failed to provide a timeline.
Johnson agreed with many of the inspector general’s recommendations, including the need to streamline the management of claims and set time frames for processing them. But he took issue with the inspector general’s insistence that the department is putting applicants at risk of accumulating interest and paying more on their loans while awaiting a decision. Johnson said borrowers waiting more than a year for a response will get a break from the department on the interest accumulated on their loans.
“The report fails to recognize that the change in administrations necessarily required time for the secretary and acting under secretary and their staffs to familiarize themselves with the history of the borrower defense claim review process in order to determine and advise [the office of Federal Student Aid] as to any policy changes that would be made,” Johnson wrote.
Though the borrower defense statute has been on the books since 1995, it was only used in five instances until Corinthian Colleges closed in 2015. The for-profit school spent its last few years battling state and federal lawsuits over alleged fraud, deceptive marketing and steering students into predatory loans — charges that mirror the allegations that brought down ITT Technical Institutes.
Former students hoped the evidence compiled against those for-profit schools would create a clear path to loan discharges, but they have endured a long wait that for many started under the Obama administration. Obama officials granted relief to Corinthian students in waves, with the vast majority of approvals issued toward the end of the administration. By then, the department had created a more full-throated approach to handling claims, according to the report.
From July 1, 2016, through President Trump’s inauguration, the department approved more than half of the 46,274 claims it received. In contrast, the Trump administration has received 25,991 claims for loan discharges, and denied two and approved none.
“Hundreds of thousands of students were defrauded and cheated by predatory colleges that broke the law, but today’s report confirms Secretary DeVos tried to shirk her responsibility to these students and shut down the borrower defense program, leaving them with nowhere to turn,” said Sen. Patty Murray (Wash.), ranking Democrat on the Senate Committee on Health, Education, Labor and Pensions.
Monday’s report arrives as DeVos has convened a committee to rewrite the borrower defense statute, a year after the Obama administration revised the rule to simplify the claims process and shift more of the cost of discharging loans onto schools. DeVos suspended the changes before they were scheduled to take effect in July and announced plans to overhaul the law.