Handling of stalled student debt relief claims threatens proposed settlement

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

Ninety-four percent of the debt relief claims the Education Department has processed since reaching the agreement in April have been rejected, the department said in a court filing last week. The federal agency issued 78,400 decisions, of which 4,400 were approved and the remainder denied.

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

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

Under the proposed deal, the Education Department agreed to clear out nearly 170,000 unresolved claims within a year and a half. Borrowers who are still awaiting a decision after 18 months would get 30 percent of their federal loans discharged for every month that the department is late, and those who are denied reserve the right to an appeal.

The agreement stems from a lawsuit brought 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 “borrower defense to repayment.” That program, which dates to 1994, provides federal loan forgiveness to students whose colleges lied to get them to enroll.

The collapse of for-profit chains Corinthian Colleges and Carmel-based ITT Technical Institutes—which spent their final days in 2015 and 2016, respectively, fighting state and federal charges of fraud and steering students into predatory loans—ushered in a flood of claims. The Trump administration’s refusal to process the applications and methods of limiting relief spawned a series of lawsuits against the Education Department.

After years of fighting and waiting, the settlement was one of the first significant moves toward a resolution. But the department’s handling of the claims covered by the agreement threatens to upend the deal. Attorneys for the borrowers say that without some assurance that the Trump administration will reverse course, it would not be in their clients’ best interest to move forward with the agreement.

Connor became alarmed over the summer after hundreds of borrowers received denials using boilerplate language without any rationale for the decision. In July, the Education Department told her that not only had 45,000 borrowers been rejected, but at least 17 of those who had been approved received no debt forgiveness. The Trump administration uses a sliding scale based on a borrower’s wages to determine relief, a methodology that economists have criticized and say results in limited loan cancellation.

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

Benjamin Thompson, a former student at DeVry University, attached a copy of the Federal Trade Commission’s lawsuit against the for-profit school to his application. That federal probe, alleging the university lied about the employment and earnings of its graduates, resulted in Thompson qualifying for restitution. But it was not enough to sway the Education Department.

In the denial letter that Rudolph Howell received in June, the department said it had reviewed evidence against ITT Tech from three state attorneys general, the Consumer Financial Protection Bureau, ITT Tech’s accreditor and a former recruiter at the school. Yet the agency rejected 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 ITT Technical Institute engaged in misconduct related to Insufficient Evidence. This allegation fails for the following reason(s): Insufficient Evidence.”

“I feel these denials are being rubber-stamped and that the Department has not taken the time to consider and analyze the merits of each decision,” Howell said in an affidavit. “I am unsure of what additional information I could possibly submit. I also cannot tell what evidence I submitted was considered and was found to be deficient.”

Attorneys for the borrowers say the Education Department is operating under a blanket policy of summarily denying claims without explanation, a charge the agency vehemently denied in court filing Friday.

“The fact that the number of denials has been relatively high in comparison to the number of approvals should be no cause for concern,” Justice Department attorneys, who are representing the Education Department, wrote in the legal filing. “The Department has, in an effort to maximize its efficiency in reducing the massive backlog, prioritized . . . applications that, based on facial deficiencies, can be most quickly denied.”

Those so-called deficiencies include applications from people who failed to provide evidence and attended schools for which the department is unaware of any misconduct. Justice Department attorneys said the Education Department 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 go up.

The department said the four templates it uses to deny borrowers are “entirely appropriate,” as they provide “standardized justifications based on common deficiencies . . . identified across thousands of applications.” The agency said it is “not realistic” to expect “detailed, personalized decisions in every case.”

Justice Department attorneys said the department will not “move for final approval of the settlement” if the borrowers continue to press for detailed responses to their claims.

The impasse in the settlement is the latest turn in a dizzying journey that for some borrowers began in the Obama administration. Obama officials granted relief to Corinthian students in waves, with the vast majority of approvals issued at the tail end of the administration. Advocates and lawmakers criticized the department for the glacial pace but had hoped the momentum would continue under President Donald Trump.

After taking office, DeVos refused to approve or deny applications for debt relief, saying her 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, which led to a lawsuit from former Corinthian students. DeVos said the case ground the system to a halt. But borrowers argued that it had no bearing on their applications and took legal action against the secretary.

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