Defrauded student loan borrowers may end up with little debt relief

Wednesday, December 20, 2017

Partial debt relief was the plan unveiled today by U.S. Department of Education Secretary Betsy DeVos, leaving defrauded student loan borrowers with broken promises and mounds of student loan debt.

The Education Department announced that 12,900 pending claims against Corinthian Colleges would be all or partially discharged. Another 8,600 claims were denied. Approximately 80,000 borrowers who applied for loan discharge remain in limbo.

Student loan borrowers of Corinthian Colleges and other for-profit schools used the Borrower Defense to Repayment rule to file for federal student loan forgiveness on the basis of being defrauded or misled by their school.

Former Corinthian students, who already applied for loan discharges, filed a class action lawsuit against the Department of Education arguing that the Department had already found that the for-profit school chain “cheated and lied to students by falsifying job placement rates.” The suit asks the court to mandate that the Department follow through and fully discharge former students’ debts.

The Education Department says its revised debt relief plan will grant defrauded borrowers partial discharge of loan debt based on a comparison of a borrower’s earnings against other graduates’ typical earnings in comparable programs. Debt relief will range from 10 percent to 100 percent.

“Student loan borrowers who relied on these for-profit schools to better themselves were often left with useless programs and mountains of debt,” said Linda Sherry, Consumer Action’s director of national priorities. “Defrauded borrowers have been deceived once again by the Education Department’s decision to penalize borrowers rather than bogus schools.”

About 20,000 borrowers will receive notice of their claims status in the coming weeks—hopefully, after the holidays.