Student Borrower Class Forces Department of Education to Process All Pending Borrower Defense Claims | Press Release
April 10, 2020
UPDATE: Judge Grants Preliminary Approval of Settlement Forcing Department of Education to Process All Pending Borrower Defense Claims
On May 22, 2020, a federal judge granted preliminary approval of the proposed settlement which forces the United States Department of Education to process the borrower defense claims of nearly 170,000 student borrowers. The Department of Education must now notify all class members about the proposed settlement and their opportunity to comment or object. After the period for class members to weigh in has ended, the judge will hold a final “fairness hearing” and afterwards, the judge will grant or deny final approval of the settlement. If the judge grants final approval, the settlement will take full effect.
Student Borrower Class Forces Department of Education to Process All Pending Borrower Defense Claims
BOSTON – Education Secretary Betsy DeVos and the United States Department of Education promise to process the borrower defense claims of nearly 170,000 student borrowers, many of which have been pending for more than four years. This long-awaited processing would come as the result of a settlement proposed in the class action lawsuit Sweet v. DeVos. The case challenged the Department’s illegal refusal to process any borrower defense claims for over a year, and the resulting unlawful delay in processing the claims.
The plaintiffs, represented by the Project on Predatory Student Lending at Harvard’s Legal Services Center along with Housing & Economic Rights Advocates (HERA), sued on behalf of a class of all 200,000 former students who had filed applications for borrower defense to repayment and have been awaiting decisions from the Department of Education. When the lawsuit was filed in June 2019, the Department had not decided a single borrower defense claim in over a year, and many borrowers had been waiting more than four years for a resolution. The Department’s inaction compounded the harm to students with federal loans that paid for worthless degrees from predatory for-profit colleges.
“It is an enormous relief to know that students will finally have answers on their borrower defense,” said Theresa Sweet, a plaintiff in the lawsuit. “For years, people have been paralyzed with debt and forced to put their education, personal goals, and financial plans on hold because we didn’t know if or when we might get a decision. Having the Department of Education be forced to put a timeframe on making these decisions is vindicating. I hope this inspires people to stand up and make their voices and interests heard because it does make a difference.”
Nearly all borrowers with pending borrower defense claims attended predatory for-profit colleges, and have suffered for years without knowing whether their loans would be cancelled, or their applications decided. More than 900 students from across the nation provided written testimony to the court about the harm they suffered while waiting on the Department of Education to process their claims. Numerous advocates and elected officials spoke out in support of the case.
“It is outrageous that students who were cheated by their school have had to go to court and fight for years, across multiple administrations, to get the Department of Education to consider their requests to discharge their bogus loans,” said Toby Merrill, Director of the Project on Predatory Student Lending. “This settlement is a very important step that will allow them to finally get a decision and move forward. The law is clear – students cheated by for-profit colleges should have their student loans cancelled. The Department of Education’s refusal to cancel these loans quickly and in their entirety is a stain on the federal student loan program.”
“Hundreds of thousands of student loan borrowers have been waiting—in some cases for years—for the Department to, very simply, do its job,” said Natalie Lyons, Senior Attorney at HERA. “While this litigation should never have been necessary, this settlement ensures that the Department can no longer hold borrowers’ lives hostage. It’s a true shame that, after suffering from the fraudulent misconduct of for-profit schools and waiting in limbo while the Department sat on their applications, a decision is the very least that borrowers can expect from the federal government.”
The proposed settlement was filed today. It requires the Department of Education to process all borrower defense claims and give students a decision on their debt cancellation within 18 months. If the judge grants preliminary approval, class members will have an opportunity to comment on the settlement before the judge decides whether to put it in place.
The terms of the proposed settlement include:
- Decisions for Student Borrowers: Decisions on all class members’ borrower defenses within 18 months and discharge of interest that accrued while the applications were pending.
- Quarterly reporting: Quarterly reports on the number of decisions made, the number of class members getting relief, any newly-identified categories of valid claims, and any new relief formulas.
- Consequences: Class members still waiting for a decision after 18 months would get 30% of their loan discharged for every month that the Department is late. If the Department garnishes wages or takes tax refunds from a class member before deciding their borrower defense claim, that person would get 80% of their loan discharged.
- If a student is dissatisfied with the Department’s decision about whether they are entitled to relief or how much relief they are entitled to, they retain the right to challenge the Department’s decision.
Since December 2019, the Department of Education has been using a new “partial relief” methodology to deny most relief to the Corinthian and ITT borrowers whose claims it has granted. The Department’s prior partial relief methodology was enjoined by a court in Calvillo Manriquez v. DeVos. That case is ongoing.
The Department of Education has continually forced students to fight for their rights in court, and then blamed these lawsuits for the Department’s own refusal to issue decisions to students.
Over the past several decades, millions of students borrowed federal student loans to attend various for-profit colleges, including ITT Technical Institute, Corinthian Colleges, the Art Institutes, Salter College, Brooks Institute of Photography, and more. This industry falsely promises students high-paying jobs, state-of-the-art vocational training, and meaningful careers.
Between 2015 and 2019, over 200,000 former students have asserted their right under federal law to discharge their federal student loans due to their schools’ misconduct. As it was legally obligated to do, the Department of Education started to adjudicate these borrower defenses, approving nearly 28,000 borrower defenses in the six-month period before January 20, 2017.
Then, under Secretary DeVos, the Department of Education refused to adjudicate any borrower defense claims for well over a year, and stopped the processing of borrower defense applications.
The Department of Education’s decision to keep these students in limbo has further destroyed students’ credit and limited their access to federal student aid. For students who have defaulted on their loans, the Department of Education has invoked its extraordinary powers to garnish their wages or seize their tax refunds (for many, their Earned Income Tax Credit).
Named Plaintiffs brought this lawsuit in June 2019. Immediately after filing the lawsuit, the students asked the court to let them represent all other former students whose claims for loan cancellation have stalled, with a motion for class certification. The motion included more than 900 affidavits from students describing the harm that the Department’s inaction has caused – with 96% saying their lives were made worse by attending school. In October 2019, the court certified the class of over 200,000 borrowers with pending claims. Many had been pending for more than four years
This lawsuit builds on past cases that hold the Department of Education accountable to students in court. In Williams v. King, Everest students fought back against the Department of Education stealing their tax refunds, and won. In Calvillo Manriquez v. DeVos, Corinthian students stopped the Department from going back on its decision to discharge their loans completely. And in Bauer v. DeVos, two former Art Institutes students forced the Department to implement the 2016 Borrower Defense rule. In August 2019, Secretary DeVos issued a new borrower defense rule imposing near-impossible standards for loan discharge; in February 2020, the Project challenged the new rule in court.