Processing stalled student debt relief applications threatens proposed settlement

A proposed legal settlement between the Trump administration and defrauded borrowers is in jeopardy after the administration revealed its widespread denials of student debt cancellation requests.

Ninety-four percent of the debt relief applications the Department for Education has processed since the deal was struck in April have been rejected, the department said in a filing last week. The federal agency issued 78,400 decisions, of which 4,400 were approved and the others rejected.

Lawyers for the borrowers in the class action claim the rejection letters lack detailed explanations of the denials, making it difficult for people to appeal the decisions. They say the department’s hasty disposal of claims without a clear cause violates the spirit of the agreement, which is still awaiting final approval.

“The numbers are startling and disturbing,” said Eileen Connor, legal director of the Project on Predatory Student Lending, a group representing borrowers. “It is confirmation that borrowers’ reactions to the advice they receive are well-founded.”

Under the proposed settlement, the Department of Education has agreed to settle nearly 170,000 unresolved claims within a year and a half. Borrowers still awaiting a decision after 18 months would get 30% of their federal loans canceled for each month the department is late, and those who are denied the right to appeal.

The deal stems from a lawsuit filed against Education Secretary Betsy DeVos and her agency in June 2019 by a group of borrowers seeking debt relief under a federal program known as the “Defense of the borrower until repayment”. This program, which dates back to 1994, gives federal loan forgiveness to students whose colleges have lied to get them to enroll.

The collapse of for-profit chains Corinthian Colleges and Carmel-based ITT Technical Institutes – which spent their last days in 2015 and 2016, respectively, battling state and federal fraud charges and luring students into loans predators – sparked a flood of complaints. The Trump administration’s refusal to process relief requests and methods of limiting it has spawned a series of lawsuits against the Department of Education.

After years of fighting and waiting, the settlement was one of the first important steps towards a resolution. But the department’s handling of claims covered by the deal threatens to upend the deal. Lawyers for the borrowers say that without some assurance that the Trump administration will back down, it would not be in their clients’ interests to move forward with the deal.

Connor became alarmed over the summer after hundreds of borrowers received denials using boilerplate language without any rationale for the decision. In July, the Ministry of Education told him that not only had 45,000 borrowers been rejected, but that at least 17 of those who had been approved had not received any debt forgiveness. The Trump administration uses a sliding scale based on a borrower’s salary to determine relief, a methodology that economists have criticized and which they say results in limited loan forgiveness.

In some of the rejections Connor reviewed, the rejected applicants had provided extensive evidence, some of which came from state and federal authorities.

Benjamin Thompson, a former DeVry University student, attached a copy of the Federal Trade Commission’s lawsuit against the for-profit school with his request. This federal investigation, alleging the university lied about its graduates’ employment and earnings, qualified Thompson for restitution. But it was not enough to influence the Ministry of Education.

In the denial letter Rudolph Howell received in June, the department said it reviewed evidence against ITT Tech from three state attorneys general, the Consumer Financial Protection Bureau, ITT’s accreditor Tech and an old school recruiter. Still, the agency denied Howell’s claim based on “insufficient evidence.”

Howell questioned whether the department even fully reviewed his application, especially after the error he spotted in the rejection letter. At one point in the notice, which was reviewed by The Washington Post, the Education Department wrote, “You allege that the ITT Technical Institute engaged in misconduct related to insufficient evidence. This claim fails for the following reason(s): Insufficient evidence. »

“I have the impression that these denials are rubber stamped and the Department has not taken the time to review and analyze the merits of each decision,” Howell said in an affidavit. “I’m not sure what additional information I could possibly submit. Nor can I say what evidence I submitted was considered and deemed insufficient.”

Lawyers for the borrowers said the Department of Education has a general policy of summarily denying claims without explanation, a charge the agency vehemently denied in the court filing on Friday.

“The fact that the number of denials was relatively high compared to the number of approvals should not be of concern,” Justice Department attorneys, who represent the Department of Education, wrote in the legal filing. “The Department has, in an effort to maximize its effectiveness in reducing the massive backlog, prioritized . . . requests which, based on facial deficiencies, can be refused most quickly.

These so-called shortcomings include claims from people who did not provide evidence and attended schools for which the department is not aware of any fault. Lawyers for the Justice Department said the Department of Education is still reviewing evidence related to other schools and that as it “develops review protocols and eligibility criteria based on this common evidence”, the approval rate should increase.

The department said the four templates it uses to deny borrowers are “highly appropriate” because they provide “standardized justifications based on common shortcomings . . . identified across thousands of applications. agency said it was “unrealistic” to expect “detailed, personalized decisions in each case.”

Lawyers for the Justice Department said the department will not “seek final settlement approval” if borrowers continue to press for detailed answers to their claims.

The settlement impasse is the latest twist in a dizzying journey that, for some borrowers, began under the Obama administration. Obama officials issued aid to Corinthian students in waves, with the vast majority of approvals issued late in the administration. Lawyers and lawmakers have criticized the department for its icy pace, but had hoped the momentum would continue under President Donald Trump.

After taking office, DeVos refused to approve or deny requests for debt relief, saying his administration needed time to review the process created under the Obama administration. Tens of thousands of claims piled up before the secretary decided to grant partial debt relief, leading to legal action by former Corinthian students. DeVos said the case crippled the system. But the borrowers argued that this had no bearing on their claims and took legal action against the secretary.

Since the department began issuing rulings again in December, it has approved about 13,500 applications and denied 118,300, according to Friday’s filing.

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