Department of Education Goes Insane When it Comes to Dealing With Defrauded Student Loan Borrowers

I admit there is nothing in this world that represents true justice or fairness. No matter what side you are on, not everyone is going to be happy with any resolution. But this Borrower Defense to Repayment program has been a total mess.

Students who were defrauded by their schools were entitled to have only their federal student loans forgiven. Some students did, some students were approved for full forgiveness and didn’t receive it, and the rest of the applications were frozen under the Betsy DeVos Department of Education.

As of November 12, 2019, the Department had received over 290,000 borrower defense applications, and more than 225,000 of those applications remained pending. – Source

New historical documents and a new position by the Department of Education have just come to light. NPR just reported past Department of Education “memos show this unit reviewed thousands of borrower complaints against now-defunct, for-profit colleges, including Corinthian Colleges and ITT Technical Institute. Just weeks before DeVos was sworn in as secretary, the unit recommended to the department’s political leadership that these borrowers deserve no less than full relief from their student debts.”

“One memo, dated Jan. 9, 2017, begins: “Corinthian Colleges, Inc. (‘Corinthian’) consistently represented that all graduates obtained jobs after graduation or, relatedly, that its students were guaranteed employment after graduation. These representations were false and misleading. Accordingly, the Borrower Defense Unit recommends full relief for Corinthian borrower defense (BD) applicants.”

The Department of Education wrote, “These representations occurred both in person and during telephone calls with prospective students. Borrowers’ allegations of “guaranteed employment” are unprompted, specific, and consistent across a span of years. Indeed, the Department has received consistent guaranteed employment claims from borrowers at every campus sampled, including borrowers who enrolled between 1998 and 2013, demonstrating that personnel made consistent guaranteed employment representations throughout the entire lime that Corinthian operated its schools. Taken together, based on an evaluation of the credibility of those statements, as well as Corinthian’s record of making misrepresentations to prospective students, a preponderance of the evidence demonstrates that Corinthian promised borrowers that they would receive jobs upon graduation.”

Another memo recommended the same thing for ITT Technical Institute students.

The Unhappy Insanity

Betsy DeVos came in as the Trump administration Secretary of Education with a different point of view. When it comes to the Borrower Defense to Repayment program she has released a new approach that provides partial loan forgiveness. In a statement, DeVos says the new plan “treats students fairly and ensures that taxpayers who did not go to college or who faithfully paid off their student loans do not shoulder student loan costs for those who didn’t suffer harm.”

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The Department of Education said, “Full relief’ sounds nice, but it really means ‘full liability’ for taxpayers – and that’s not fair in cases where a borrower is not entitled to it. That’s why it’s imperative that we consider each Borrower Defense claim individually. To force taxpayers to provide blanket forgiveness would be abandoning our duty to be good stewards of tax dollars. The Department will provide student loan relief to those who qualify for it.”

Where was the good stewardship of tax dollars then and now by the Department of Education as they handed out the money?

I understand that point. But where is the sanity in the continued federal student loan program that extends easy money to indebt students today for substandard programs, for-profit schools, and those taking advantage of high-priced tuition for military members?

It seems grossly unfair to selectively punish students today for taking out the easy loans the federal government made available when it has been proven in a court of law that the students were clearly defrauded.

The New Forgiveness Program Can be Easily Gamed

The newest of new programs concludes that forgiveness will be granted based on a current income. I’m confident there will be lawsuits over this approach.

If the underlying issue is students were misled to enroll with claims of guaranteed employment and then graduated but found a job not related to their time and expense with the schools, it will be held against them.

Under the current forgiveness plan, the level of loan discharge will be based on current income regardless if that job has anything to do with attending those schools. It feels a bit like punishing people twice again. They went to a school and enrolled under false promises, put that behind them and went out to find their own jobs and because of that, they will have to suffer from minimal loan forgiveness.

The new forgiveness proposal says it, “provides relief to successful borrower defense applicants based upon a comparison of the program-level earnings for graduates of the specific program at the borrower’s school that is at issue in the borrower defense application, with the earnings of graduates at the same or similar program at other schools.”

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What is a “similar program” at other schools? Does this mean if you easily fell into one of the fields of study based on a fraudulent inducement that you should be equally compared to those at reputable school or what if the student is employed in a field that has nothing to do with their field of study at the fraudulent schools?

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You have to love the statement “In assessing the appropriate measure of relief, it is important to note that the majority of borrower defense applicants have not provided the Department with evidence of or supporting the scope of their harm to support their claims, likely because the Department did not require such evidence when they applied.” Duh!

Arguments on Both Sides

I guess the difference of opinions is the result of a difference in government administration. The current feeling is that in the past,” the Department relied upon its practice of providing 100% relief to many other claimants and reasoned that it would not be fair to change that practice for the next group of claimants in the queue. However, the persuasiveness of any prior provision of 100% relief depends on both the correctness of the original decision to provide 100% relief to another claimant and on the relevant similarities and differences between the two claimants. The Department also cited to applicants’ difficulty in transferring their credits to another institution, concluding that such difficult greatly diminished the value of those credits. A decrease in value does not equate to a complete loss of value, however, and the value of credits for transfer purposes is not the only value received by a student. Furthermore, the Department also has determined that transfer of credit limitations are widespread, and often times transfer credits are denied as a result of academic elitism or perceived differences in accreditation standards which have not been substantiated.”

How This Gets Gamed

The new program does not appear to define exactly when earnings are used to calculate forgiveness. If it ends up being from this point forward then a bunch of former students may just quit their jobs and live in their parent’s basement for a couple of years.

How about those students who were paid under the table or made unreported earnings? They will get a bigger percentage of forgiveness.

But before we get all caught up in that, let the lawsuits begin.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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