Student Borrower Advocates Ask Education Department to Cancel 25+-Year-Old Debts from Closed For-Profit Colleges | Press Release

March 24, 2022

Advocates submit group discharge request on behalf of all individuals who attended for-profit schools that closed prior to January, 1994

 

BOSTON – Student borrower advocates submitted a group closed school discharge request today to the U.S. Department of Education on behalf of all student borrowers, including their clients, who attended a for-profit school listed in the Department’s official closed school search file with a closure date prior to January 1, 1994. Due to the timing of their loans, these borrowers lack access to alternative borrower defense rights to cancel their loans.

There are about 2,933 domestic schools on the closed school list with closure dates prior to January 1, 1994, a large percentage of which were for-profit, including many schools that closed after losing federal loan eligibility due to exorbitantly high default rates.

The request was submitted to Education Secretary Miguel Cardona in a letter from the Project on Predatory Student Lending (PPSL), New York Legal Assistance Group (NYLAG) and Legal Aid Foundation of Los Angeles (LAFLA).

The closed school discharge statute mandates loan discharges for borrowers who were unable to complete their programs due to school closures. Advocates argue that the Department should presume that these borrowers meet this condition, as the existence of outstanding balances after such a long period indicates that most if not all did not benefit financially from their educational experiences. Additionally, there is a strong correlation between student loan repayment struggles and non-completion. These individuals have struggled to repay their loans for twenty-five years or more and many are currently in default on their loans or have experienced long periods of default and delinquency.

The letter includes several examples of borrowers who have been impacted (some names have been changed for confidentiality purposes):

  • Robert Fernandez enrolled at the Transwestern Institute in Los Angeles in 1987. He obtained federal student loans, but dropped out after a few months because of abuses at the school. These abuses and legal violations persisted for some time, but the school did not officially close until 1990. By the time Mr. Fernandez sought help from legal aid, his sole source of income was General Relief benefits (about $220 per month). His loan balance by then had ballooned to $22,000.
  • Joe Medford is a military veteran who attended American Business Inst., which was owned by Wilfred Education Corp., in 1988. Among other abuses and legal violations, the school misrepresented the quality and qualifications of instructors, failed to provide promised job placement services, and falsely promised that students would have job offers by the time they graduated. Mr. Medford’s campus closed at least a year after he attended. He is in default on the loans and has already experienced both tax refund offsets and wage garnishment, presumably more than enough to pay off the original principal and more. Mr. Medford’s loan balance has ballooned to over $30,000 from a loan that started at about $5,000.
  • Hazel Marlene Stamm enrolled in Wilfred Academy in New Jersey around 1989. She borrowed federal loans to study in Wilfred’s Cosmetology program. After starting classes, she requested medical leave due to her pregnancy. After she returned to Wilfred, Mrs. Stamm learned the school failed to register her medical leave and her federal loan was registered as “defaulted.” She only had three weeks left to complete her program when Wilfred closed. In the years that followed, she received threatening collections calls and notices about her defaulted student loans. Mrs. Stamm suffers from health problems and is concerned about her outstanding loan balance of at least $9,000.

“All of these borrowers, our clients, have suffered years of collection harassment, credit damage, occupational license removals, benefits seizures, and other punitive measures — suffering far longer than the schools that cheated them and closed nearly 30 years ago,” said Eileen Connor, Director of the Project on Predatory Student Lending. “Cancelling these very old loans is something the Department has the discretion and authority to do immediately and would be long-delayed justice for a group of people who have fallen through the cracks of the system and been ignored for decades.”

“We have assisted hundreds of borrowers in New York City and across the country who struggle with debt from predatory, for-profit colleges that closed decades ago,” said Jessica Ranucci, Coordinating Attorney at the New York Legal Assistance Group. “Not only did they receive no benefit from their schooling, but many of them have already paid thousands of dollars on their loans over many years, in lieu of other necessary expenses, and still have outstanding debt. We call on the Department to recognize that continued collection on these very old, flawed loans is deeply unjust and to cancel these loans to provide critical relief to the borrowers who have suffered the longest and need it the most.”

“LAFLA’s clients tried to follow the American dream and obtain a higher education, only to discover that their schools were scam operations that led only to years of federal debt collection instead of an economically stable future,” said Robyn Smith, Senior Attorney at the Legal Aid Foundation of Los Angeles. “During the late 80s and early 90s, the Department neglected its duty to protect student loan borrowers from fraud, leaving them to the mercy of the worst predatory for-profit schools. It is high time the Department used its authority to cancel these loans and end the decades of financial suffering these borrowers have endured.”

 

About the Project on Predatory Student Lending

Established in 2012, the Project on Predatory Student Lending represents more than one million former students of predatory for-profit colleges. Its mission is to litigate to make it legally and financially impossible for federally-funded predatory schools to cheat students and taxpayers. The Project has brought a wide variety of cases on behalf of former students of for-profit colleges. It has sued the federal Department of Education for its failures to meet its legal obligation to police this industry and stop the perpetration and collection of fraudulent student loan debt.

 

About NYLAG

Founded in 1990, New York Legal Assistance Group (NYLAG) is a leading civil legal services organization combatting economic, racial, and social injustices by advocating for people experiencing poverty or in crisis. Our services include comprehensive, free civil legal services, financial empowerment, impact litigation, policy advocacy, and community partnerships. NYLAG exists because wealth should not determine who has access to justice. We aim to disrupt systemic racism by serving individuals and families whose legal and financial crises are often rooted in racial inequality. NYLAG goes to where the need is, providing services in more than 150 community sites (e.g. courts, hospitals, libraries) and on our Mobile Legal Help Center. During COVID-19, most of our services are virtual to keep our community safe. NYLAG’s staff of 300 impacted the lives of nearly 90,000 people last year.

 

About Legal Aid Foundation of Los Angeles

Legal Aid Foundation of Los Angeles (LAFLA) is a nonprofit law firm that seeks to achieve equal justice for people living in poverty across Greater Los Angeles. LAFLA changes lives through direct representation, systems change, and community empowerment. It has five offices in Los Angeles County, along with four Self-Help Legal Access Centers at area courthouses, and three domestic violence clinics to aid survivors.

 

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