Student Defense, on behalf of Housing and Economic Rights Advocates (HERA), filed a lawsuit on November 13, 2018 demanding that the Department of Education immediately fulfill its legal obligations and discharge the loans of tens of thousands of students whose schools or campuses have closed. Housing and Economic Rights Advocates is a California-based non-profit organization that that provides legal aid and counseling for vulnerable student borrowers and other consumers.
Many borrowers who attended approximately 1,400 campuses that closed between November 2013 and November 2015 are now entitled to have their federal student loans immediately discharged without submitting an application, yet the Department continued to collect on their loans instead.
Many for-profit schools close without warning after state or federal government investigations reveal they have been deceiving students to obtain federal funds, leaving students in debt and with nowhere to turn. Students who attend for-profit colleges are particularly vulnerable to ending up deeply indebted without a degree or education of value. According to federal data from 2009, nearly one-third of students who enrolled at a for-profit college, but did not complete their program of study, had federal student loans equal to or exceeding their annual income.
The Department of Education’s Borrower Defense Rule, a regulation finalized in 2016, instituted a provision known as Automatic Closed School Discharge – in short, the provision requires the Department to automatically discharge the loans of all eligible borrowers harmed by the abrupt closure of their school. The automatic aspect of the relief is especially important because students are often unaware of their rights – fewer than half of eligible borrowers affirmatively apply for relief.
Under Secretary DeVos, the Department delayed the July 1, 2017 implementation of the Borrower Defense Rule three times, and in September 2018, a federal judge held that the delays were unlawful, arbitrary, and capricious. After the judge’s order, the rule went into effect as if the Department’s illegal delays had never happened. Since that ruling, the Department still has not implemented the automatic discharge provision and continues collecting on loans that it is required by law to discharge.
NSLDN and HERA demanded that the Department take immediate action, so that borrowers who have never been informed of their rights can receive the following benefits:
- Complete loan discharge: Borrowers who get a closed school discharge are no longer obligated to repay any outstanding loan principal, accrued interest, or collection costs.
- Refund of payments already made: Borrowers should be reimbursed for any and all payments made to date on the loan, including through wage garnishment or tax refund offsets.
- Federal aid eligibility: Borrowers should be made eligible for new loans and grants, including Pell grants.
- Clear credit history: Any adverse credit history due to the loans should be deleted by the credit reporting agencies.
Update: Following the lawsuit, the Department confirmed to Student Defense that it will:
- Identify eligible borrowers approximately every 30 days, using National Student Loan Data System (NSLDS) data.
- Process loan discharges within 30-90 days after identification. Once a discharge has been processed, servicers or guarantors should update the borrower’s credit report within approximately 30 days.
- Provide quarterly reports on the implementation of the automatic closed school provision. The quarterly reports should include school-level data where possible, except in cases where there are fewer than 10 borrowers at a school receiving relief.