The Education Department can discharge federal student loans when a college uses illegal tactics to persuade students to borrow money. The agency acts under a federal statute known as borrower defense to repayment. The agency has been inundated with applications from former students of defunct for-profit chains Corinthian Colleges and ITT Technical Institutes. Both spent their final days enveloped in state and federal investigations and lawsuits over alleged fraud, deceptive marketing and steering students into predatory loans.
One of those investigations in 2015, a collaboration between California authorities and the Obama administration, found that Corinthian widely misrepresented job placement rates for graduates of its Everest and WyoTech schools. As a result, the department agreed to expedite loan discharges for students who attended those schools, a slow-going process that started to make headway at the end of the Obama administration. But not a single claim has been approved since Trump came into office.
“It’s time for secretary DeVos to do the work that was done by the previous secretary of education to help students seeking debt relief,” Becerra said, on a call with reporters Thursday. “We know that the department is holding a pot of money that was made available through the settlement of lawsuits to provide relief to these students.”
The Education Department declined to comment on the lawsuits. The agency has in the past described other lawsuits filed by Democratic attorneys general as a partisan attack on the Trump administration. The same prosecutors involved in Thursday’s lawsuits were among 19 state attorneys general who sued DeVos in July for delaying an overhaul of the borrower defense rule, and 18 attorneys general who took legal action against her in October for dismantling a rule to regulate career-training programs.
DeVos and the department have endured withering criticism from advocacy groups, liberal lawmakers and a federal watchdog for letting defense claims pile up.
This week, the U.S. Department of Education’s inspector general said that while the procedure for processing claims could be improved, the system works well enough that there’s no excuse for the department failing to clear the backlog of claims.
A team of attorneys working on the applications have flagged nearly 12,000 for approval and about 7,200 for denial. The inspector general said acting under secretary James Manning has refused to sign off on those claims because the new administration needed time to review the policies put in place by its predecessor. Wayne Johnson, who heads the student aid office, told the inspector general that the discharge of some of the claims flagged for approval is “imminent.”
The Washington Post first reported in October that there are more than 87,000 applications for debt relief pending, according to people in the department who were not authorized to speak publicly. About two-thirds of those claims come from Corinthian students, some of whom have been waiting for years.
Applicants with pending claims are accruing interest on their loans while they wait. Many have placed their loans in forbearance, a grace period they can extend while waiting for approval. But in July, Manning informed Sen. Richard J. Durbin (D-Ill.) that the forbearance period was almost up. At least 31,000 applicants were at risk of their forbearance period expiring 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, the borrowers could become delinquent, end up in default and have their wages garnished.
Attorneys general argue that even if a Corinthian student has not filed a claim or sought forbearance, the federal government cannot legally collect on that debt because the Education Department found evidence of fraud. But the federal government had seized the tax refunds, government benefits or wages of more than 30,000 Corinthian borrowers as of last year, according to the Massachusetts complaint.
“Students will never be made fully whole from their experiences at these schools, but this is what they’re owed under federal law,” said Massachusetts Attorney General Maura Healey, during a call with reporters Thursday. “We’re going to keep continuing to fight as long as the department ignores its obligations, and ignores what is right.”