SAN FRANCISCO (CN) – The U.S. Education Department's refusal to process borrower defense claims has left more than 160,000 students "in limbo," damaged their credit and permanently delayed their accumulation of wealth, student borrowers claim in a class action filed Tuesday.
"The department’s failure to properly oversee the for-profit college industry on the front end, and its refusal to remediate the fraud that occurred on its watch, has eliminated any pretense that the government will protect these students," the students say in their 62-page federal complaint.
Enacted in 2015 by the Obama administration, the borrower defense rule gave students who attended predatory for-profit colleges an avenue to have their loan debt forgiven. The rule was enacted as the government started cracking down on for-profit schools including ITT Technical Institute, Corinthian Colleges and Devry University, which were investigated for deceiving students about the value of their educational programs.
In the six months before President Donald Trump took office in January 2017, the Education Department cancelled the loan debt of approximately 28,000 students who filed borrower defense claims.
After Trump's inauguration on Jan. 20, 2017, the Education Department announced it was taking a "pause" in processing those claims in order to "re-evaluate" the Obama-era policies.
According to the lawsuit filed Tuesday, that "pause" has become a "policy of inaction and obfuscation" intended to prevent defrauded students from obtaining debt forgiveness as required under the law.
There were 158,110 borrower defense claims pending at the end of 2018, according to a quarterly Education Department report cited in the complaint.
Education Secretary Betsy DeVos has criticized the borrower defense rule, complaining at a 2017 Republican leadership conference in her home state of Michigan that a student merely had to “raise his or her hands to be entitled to so-called free money" under prior administration's rule.
The student borrowers claim in their lawsuit that DeVos staffed the Education Department with high-ranking officials who worked for or had connections to the for-profit college industry.
Meanwhile, the borrowers say their loans continue to accrue interest. Some say they were denied jobs due to bad credit caused by their loan debt.
"This credit harm perversely prevents some students from attaining even entry-level employment, locking them into a negative cycle of financial insecurity," they say in their complaint.
The loan debt can also block borrowers from buying a home or saving for retirement, both factors that will permanently delay their accumulation of wealth even if the department eventually grants their requests to cancel the student loan debt, according to the lawsuit.
"The department’s refusal to adjudicate borrower defenses leaves borrowers with a lack of faith that their government works for them," the students say.
They claim the Education Department has unreasonably delayed processing borrower defense claims and adopted a de facto policy not to grant borrower defense claims in violation of the Administrative Procedure Act.
The plaintiffs seek a court order directing the Education Department to stop collecting on loans for which students have filed borrower defense claims and to issue decisions on all pending borrower defense applications.
The proposed nationwide class of student borrowers is represented by Eileen Connor of Housing and Economic Rights Advocates in Oakland, California.
In a statement, U.S. Department of Education press secretary Liz Hill said the department is ready to finalize borrower defense claims and would do so immediately – except for the bombardment of lawsuits.
“The only thing stopping the department from finalizing thousands of these claims is the constant stream of litigation brought by ideological, so-called student advocate special interests,” Hill said in an emailed statement. “The department was resolving claims before the injunction and continues to adjudicate claims as quickly as it can. Sadly, for the affected students, we can’t take final action because of the pending litigation.”
Hill also blamed the backlog in claims on the Obama administration, which “had put in place no real process for reviewing claims.”
In September 2018, a federal judge in Washington blocked the Education Department from dismantling the Obama-era rule intended to protect student-loan borrowers from predatory lending practices.
Another federal judge last year also ordered the Education Department to stop collecting on loans for students defrauded by the now-defunct Corinthian Colleges, but she refused to wipe out loan debt for those students. That ruling is currently under appeal.Follow @NicholasIovino
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