Students awaiting rulings on debt claims get break
The Education Department attempted to make amends Nov. 14 for long delays in ruling on the claims of thousands of students who allege they were defrauded by their colleges.
Interest that has accrued on loans for denied claims will be forgiven starting one year after the claims were filed, said James Manning, the acting Education undersecretary.
The announcement comes as the department is hearing from a panel rehashing the regulation that allows students to make such claims. Negotiators Nov. 14 were in the second day of debating the so-called borrower defense rule, which lets the Education Department discharge the federal loans of students who were misled by colleges.
The Obama administration began approving and discharging claims last year, but that process ground to a halt under the Trump administration, which is likely delaying the borrower defense regulation until July 1, 2019. Currently, there are about 95,000 pending claims for loan forgiveness, some which were inherited from the Obama administration nearly a year ago.
“The Department recognizes that many borrowers have waited a long time to hear about the disposition of their claims,” Manning said. “To mitigate the inconvenience for how long it has taken to adjudicate claims, interest that accrues on loans for denied claims will be forgiven starting one year after the borrower defense application is filed.”
The regulation’s delay is part of a larger plan to rewrite the regulation. As part of the process, negotiators including representatives of students, consumers, and public, private, and for-profit colleges, are meeting this week in the first of three sessions to debate some of the specifics of the regulation.
The regulation was developed in the wake of the for-profit school company Corinthian College declaring bankruptcy. The move left thousands of students struggling to repay their loans and holding degrees that many employers deemed worthless.
A number of issues related to the regulation were debated, including whether colleges should be on the hook if they made and subsequently fixed a mistake that misled a student. Also discussed was whether there should be a single federal standard—rather than state standards—in cases when a college has misled students.
The department considers this session, the first of three, primarily a listening session for department officials.
Further Input Sought
Several times, department representatives asked for further input from negotiators on whether they would support partially discharging loans in cases where students were deceived on the value of their degree, but still got some value from attending the school.
Aaron Lacey, an attorney with Thompson Coburn LLP who helps colleges comply with legal and regulatory matters, said students pay a college for credits and a degree, and if students want to have their loans forgiven, they should be willing to give up the credits.
“You can’t give them the money back and they get to the keep the product,” Lacey said.
However, having a job isn’t an adequate measure of whether a student was harmed by a college, said Abby Shafroth, a staff attorney at the National Consumer Law Center. Shafroth said she has worked with for-profit-college students who said they are more successful when they leave their degree off their resume.
“They’re still able to get a job notwithstanding having gone to a program, rather than because they’ve gone to a program,” she said. “They’ve still suffered harm in taking out $10,000 in debt to go to a program that’s not helping them advance their career or earn more money.”
Agreement on Refunds
Those at the table were divided on a number of issues, but did find at least one agreement. Using their thumbs to indicate yes, no or maybe, all negotiators indicated they were a “yes” or a “maybe” on ensuring that a students would be refunded any payments they had already made on their federal loans if they were found to be eligible for discharge.
The negotiators will meet again on Nov. 15 for the final day of the first session. Two more sessions will be held—Jan. 8-11 and Feb. 12-15.