Court Orders Education Department to End Delay in Ruling on Loan Discharge

A federal district court judge last week ordered the Department of Education to rule within 90 days on an application for loan relief by a former Corinthian Colleges student. The application has been pending for more than two years.

The plaintiff in the case, Sarah Dieffenbacher, took out $50,000 in federal student loans while attending Everest College (part of Corinthian) from 2007 to 2012. She submitted an application for loan cancelation alleging fraudulent conduct by the for-profit college in March 2015, a month before Corinthian announced it was closing down campuses operated by Everest and its other remaining brands. 

While waiting for a ruling on the application, Dieffenbacher had her loans go into default and her wages garnished. She filed the lawsuit with representation from the Project on Predatory Student Lending after the department overruled her objections to the wage garnishment. 

She said in a statement she was fighting for herself and other students defrauded by for-profit colleges. 

Toby Merrill, director of the Project on Predatory Student Lending, said the ruling confirms "student loan borrowers have rights that exist independently of political winds and caprices. 

"It is inexcusable to delay and thereby deny Sarah and other borrowers in similar positions their contractual and statutory rights," Merrill said. 

The slow resolution of discharge applications by student borrowers who pursued borrower defense to repayment claims came under intense scrutiny from student debt activists and Democratic lawmakers under the Obama administration. And under the Trump administration, resolution of those claims appears to have ground to a halt at the Department of Education. 

Some advocates pushed for the department under Obama to grant automatic group discharge to student borrowers who attended failed for-profit institutions. The department said it did not have the power to do so, insisting that borrowers make individual claims of fraud. 

Since January, however, even student borrowers already promised relief by the department in response to discharge applications have not seen their loans forgiven. This week, a group of state attorneys general wrote Education Secretary Betsy DeVos a letter seeking an explanation for the delay in granting those discharges as well as the delay in resolving applications still pending.