Updated with a response from the Social Security Administration.
The U.S. Department of Education said Wednesday it has approved 12,900 applications for student loan forgiveness and denied 8,600 from former students of Corinthian Colleges, while implementing a plan to grant partial relief to others defrauded by the defunct for-profit chain.
The announcement is the first substantial step Education Secretary Betsy DeVos has taken to clear a backlog of debt relief claims that amassed over the past year. It arrives as the secretary and the department are facing lawsuits from attorneys general and consumer advocates for halting the loan forgiveness process. But the path DeVos is charting for the management of applications may create more problems than it solves, consumer advocates warned.
Going forward, the Education Department will provide relief to Corinthian borrowers by comparing the average earnings of students in similar vocational programs. Applicants will receive full loan forgiveness if their earnings are less than 50 percent of their peers’. If their pay is at or above that threshold, the department will provide relief on a sliding scale. If a student was enrolled in multiple programs, the program that yields the most relief will be used in the calculation.
“No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly,” DeVos said in a statement. “This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified.”
A federal statute known as borrower defense to repayment gives the Education Department authority to discharge federal student loans when a college uses illegal tactics to persuade students to borrow money. The department says its partial relief plan is well within the parameters of the law. Consumer lawyers disagree.
“The department cannot suddenly change the rules to provide less relief,” said Abby Shafroth, a staff attorney at the National Consumer Law Center. “Changing course now is unfair to defrauded borrowers who were misled first by Corinthian and now by the department, and is likely to be challenged in court.”
Under the Obama administration, the Education Department agreed to expedite loan discharges for students who attended Corinthian’s Everest and WyoTech schools, after an investigation found widespread misrepresentation of job placement rates for graduates. That agreement is the basis of two lawsuits filed by the attorneys general of California, Massachusetts, New York and Illinois.
A recent report from the Education Department’s inspector general found that 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 — until now.
Applicants have endured a long wait that for many started under the Obama administration. Borrowers waiting more than a year for a response will get a break from the department on interest that accumulated on their loans. The department said borrowers will be notified on a rolling basis as their discharges are finalized. The Education Department says about 37,000 claims regarding Corinthian loans remain to be resolved.
“The new draconian limits on student loan discharges would punish borrowers who manage to stay afloat despite being mistreated by their schools,” said Debbie Cochrane, vice president at the Institute for College Access and Success, an education nonprofit. “A student lured into enrolling in and borrowing for a worthless program might see minimal to no relief if they were paying their bills by working in a completely unrelated job, earning minimum wage.”
Questions remain about the use of the data underpinning the new partial relief model.
The Education Department is relying on earnings data collected under the gainful employment regulation, which penalizes career-training programs for producing too many graduates with more debt than they can repay. Critics say the gainful data is an imprecise measure for calculating forgiveness. The data only reflect the take-home pay of federal aid recipients who completed their programs, but many applicants for relief may never have finished school.
Congressional Democrats have questioned whether the department can rightfully use the earnings data, which is supplied by the Social Security Administration, for any purpose other than to evaluate vocational programs under the law.
After The Washington Post first reported the partial relief plan in October, 10 congressional Democrats wrote DeVos and Wayne Johnson, the head of the student aid office, about the forgiveness model. They said the department must publish a notice in the Federal Register and solicit public comment to change the purpose of the gainful employment data. What’s more, they said the department is required to prepare reports for Congress on such a proposal.
Correspondence with the Social Security Administration has cast further doubt on the use of the earnings data. In an email obtained by The Washington Post, the agency told a Democratic staffer that based on an “unofficial, non-legal, staff-level understanding . . . we do not believe [the Education Department] would be authorized to use earnings information we provide under any current agreement to make decisions about whether or not to grant debt relief to borrowers in certain vocations.”
Social Security Administration spokeswoman Dorothy Clark said the agency’s general counsel is consulting with attorneys at the Education Department on the permissible use of data under their data exchange agreement.
“Regardless of whether or not the usage was covered under the agreement, the use of aggregate data would not violate the Privacy Act or the Social Security Administration’s privacy regulations,” she said.
Education Department spokesman Nathan Bailey said, “This use is fully consistent with the department’s agreement with the Social Security Administration.”