Attorney General Shapiro Demands Secretary DeVos Begin Granting Relief for Tens of Thousands of Eligible Borrowers

October 31, 2018 | Topic: Consumers

HARRISBURG — Attorney General Josh Shapiro yesterday called on the U.S. Department of Education to immediately discharge the student loans of eligible borrowers who attended schools that abruptly shut down before they could complete their degrees. Many of those schools were predatory, for-profit colleges.

In the letter, a coalition of 21 attorneys general urges Education Secretary Betsy DeVos to fulfill her obligation under federal law to provide immediate and automatic loan relief to borrowers who attended a school when it closed on or after November 1, 2013, and who did not subsequently re-enroll in an eligible program within three years from the date the school closed. It is estimated that under federal law, tens of thousands of students nationwide who attended any of the 1,400 schools that closed in 2014 and 2015, more than 50 of which are in Pennsylvania, are eligible for approximately $400 million in automatic debt relief.

“The regulations governing this type of student loan forgiveness unambiguously require Secretary DeVos and the Trump Administration’s Department of Education to process these discharges immediately and without exception,” said Attorney General Shapiro.  “Two weeks ago, a judge ruled that the Borrower Defense Rule – which protects students and their families – must go into effect immediately.  I am calling on Secretary DeVos to simply do what the court has ordered.”

Under the Borrower Defense Rule, students may be eligible for automatic closed-school debt relief if they did not complete the program of study at a school either because the school closed while they were enrolled, or because they withdrew not more than 120 days before the school closed. For example, when the predatory, for-profit Corinthian Colleges (Corinthian) shut down in April 2015, it left approximately 16,000 students displaced.  Many of these students are now immediately and automatically eligible to have their federal student loans forgiven and to receive a refund of all repayment amounts, provided they did not enroll in a title IV-eligible program within three years from the date the school closed.

The Borrower Defense Rule also allows students defrauded or cheated by their school to apply for relief and have their federal student loans forgiven. When students submit a borrower-defense claim, they can request to have their loans placed in forbearance and to halt collection attempts, even on defaulted loans.

The Borrower Defense Rule was finalized by the Obama administration in November 2016 after nearly two years of negotiations, following the collapse of Corinthian Colleges, a national for-profit chain of schools.  The Rule was set to go into effect on July 1, 2017.  But in May 2017, Secretary DeVos announced that the Department was rescinding the Borrower Defense Rule and later announced its intent to delay large portions of the Rule without soliciting, receiving, or responding to any comment from any student, stakeholder, or member of the public, and without engaging in a public deliberative process. The Department simultaneously announced its intent to issue a new regulation to replace the Borrower Defense Rule.

In response, a coalition of state attorneys general including Attorney General Shapiro, filed a lawsuit in July 2017, alleging that the U.S. Department of Education violated federal law by abruptly rescinding its Borrower Defense Rule. As a result of this lawsuit, a federal judge ordered the Education Department to begin enforcing the Borrower Defense Rule on October 16, 2018.

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