The past couple of weeks have brought three pieces of positive news about the U.S. Department of Education’s massive student loan program.
I. Legal Injunction Blocks—for Now—Controversial DeVos Policy Only Partially to Reimburse Students Defrauded by Corinthian Colleges
At the end of last week, a district court judge in California stopped, for now, a new practice the U.S. Department of Education had been using since December to determine partial forgiveness of federal loans for students defrauded by the now-closed Corinthian Colleges—a chain of for-profit institutions closed in 2015 after the Obama administration cracked down.
USA Today‘s Kevin McCoy examines the background surrounding the closure of Corinthian Colleges—the background for last week’s legal action: “The legal fight focuses on Corinthian, a former Santa Ana, Calif.-based company that primarily offered certificate and associate degree programs nationwide through its Everest, Heald, and WyoTech colleges. During 2009 and 2010, Corinthian operated more than 100 campuses in 25 states, enrolled more than 110,000 students and collected $1.7 billion in federal student aid…. The department placed a hold on Corinthian’s access to student loans, essentially choking off much of the company’s funding.” The Obama administration discharged the loans for 25,000 Corinthian borrowers who proved they had been defrauded by Corinthian or been enrolled when the schools closed.
However, the Associated Press‘s Maria Danilova reports that, last December Betsy DeVos’s Department of Education, claiming that some Corinthian programs prepared students better for employment than other weaker programs, established a new policy intended to save the federal government money by only partially reimbursing students—depending on the Education Department’s assessment of the quality of their schooling—for their unpaid federal loans now that Corinthian has been shut down: “(E)ducation officials in December established a new procedure that would vary the loan forgiveness percentage for former Corinthian students and similar borrowers. The system is based on the programs the students attended and whether they subsequently were able to earn as much as peers in programs that satisfied the gainful employment guidelines. Danilova quotes DeVos describing her new plan: “This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified.”
Attorneys for 110,000 former Corinthian borrowers filed a class action complaint in March, and on Saturday, U.S. Magistrate Judge Sallie Kim instituted a preliminary injunction against the DeVos program pending further investigation: “Kim’s ruling said the Department of Education violated the students’ privacy by sharing their names, birth dates, and Social Security numbers with the Social Security Administration, and then using additional SSA information to calculate what percentage of the loans should be forgiven.” The Department had used the students’ private information to compare the current incomes of Corinthian’s former students to the earnings of others who attended other institutions. The preliminary junction is merely the beginning of this court battle. The judge has scheduled a second hearing on June 4: “The court also said it needs to hear more from the agency and plaintiffs in the class-action suit in order to decide whether or not to compel the agency to return to full loan forgiveness.”
II. DeVos’s Department Will Stop Using Private Debt Collectors for Student Loans
The Washington Post‘s Danielle Douglas-Gabriel reported last week: “The Education Department plans to stop using private debt collectors to handle overdue student loans, a practice that had drawn scorn from activists who said the companies stop at nothing in pursuit of tardy loans… Instead of having private collection agencies solely dedicated to recouping past-due education loans, the department will add those duties to the responsibilities of companies that service loans. Those companies will try to help borrowers who fall behind on their payments before they end up in default.”
The switch will not happen immediately, however: “While the Federal Student Aid office implements its new approach, the 13 private debt-collection companies already under contract will absorb new accounts until the transition is completed. The department has yet to set a completion date.”
There has been controversy as the Department of Education has sought to reduce the number of debt collectors. Two collection companies had been selected to qualify for lucrative contracts, each worth up to $400 million: Windham Professionals and Performant Financial. Some of the controversy has arisen because Secretary of Education Betsy DeVos had personally invested in Performant Financial, although she divested from the company soon after her confirmation as Secretary of Education.
Douglas-Gabriel reports that in January, a dozen Congressional Democrats formally wrote to protest the Department of Education’s use of private collection agencies: “Last year, the federal government spent about $700 million on debt collection for fewer than 7 million borrowers in default—nearly the same amount it spent on loan servicing for more than 33 million people paying down their debt…. The Consumer Financial Protection Bureau estimates that, in some cases, the Education Department pays private collection agencies nearly $40 in compensation for every $1 in cash recovered from borrowers whose loans are placed back into repayment through a rehabilitation program.” Senator Elizabeth Warren has derided the debt collection agencies for “lying to student borrowers and breaking the law.”
III. Congress Will Forgive Additional Student Loans for Public Sector Workers Who Had Been Guided by Loan Processors to the Wrong Program
Last week, reports Danielle Douglas-Gabriel, “The U.S. Department of Education… released more information about a temporary program to help social workers, teachers and other public servants at risk of missing out on federal student loan forgiveness because they enrolled in the wrong repayment plan.” In the 2018 budget bill, Congress included $350 million to expand Public Service Loan Forgiveness—that cancels the remaining federal student loan debt for people who have paid regularly on their loans for ten years and who have public sector jobs.
Some borrowers have been previously misled by their loan servicing companies and told they were in a plan by which their loans would be forgiven after ten years, only to find out later that they were in the wrong plan. Now, explains Douglas-Gabriel, “The Education Department will reconsider eligibility using an expanded list of repayment plans: graduated repayment, extended repayment, consolidated standard repayment and consolidated graduated repayment. None of those plans would typically qualify under the loan forgiveness program. Borrowers must have made 120 payments under those plans while working full-time in the public sector.”
Douglas Gabriel warns: “Lawmakers created a $350 million fund to cover the cost of canceling more loans, but once the money runs out, so will the offer. Forgiveness under this temporary program is being offered on a first-come, first-served basis. People who meet the criteria must email FedLoan at TEPSLF@myfedloan.org to request their case be reconsidered.”