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Federal Judge Considers Stopping Rejection of Borrower-Defense Claims

October 21, 2020
 
 

In a strongly worded order, a federal judge in California is signaling that he may put a stop to the Education Department’s nearly universal denials of requests by those who have been defrauded by for-profit colleges to have their student debts canceled.

Attorneys representing more than 200,000 borrowers sued the U.S. Education Secretary Betsy DeVos last year, saying that the department stopped processing the claims between June 2018 and December 2019, leaving some in limbo for as long as four years.

The sides seemed to reach an agreement in May, when the department agreed to process the remaining claims within a year and a half.

But since then, attorneys representing the borrowers said, the department has denied 89 percent of the claims as of last August, sending borrowers a curt form letter with no explanation of why it was issuing a denial. In comparison, the department under the Obama administration had granted 99.2 percent of the requests, U.S. District Court Judge William Alsup noted.

Saying the borrowers had likely not intended for the department to process the waiting claims by denying them, Alsup on Monday denied approval of the May settlement.

Instead, he ordered attorneys representing the borrowers to depose department officials to learn to what extent it has been denying the claims of those defrauded by for-profits found by the department to have acted improperly and whether the form denials are different from how the Obama administration handled rejections. He also asked for arguments from both sides about whether he should block the department from rejecting any more requests until the lawsuit is concluded.

Alsup also questioned the department’s explanation that it had stopped processing the claims for 18 months because of the work involved. “Where there’s smoke, there’s fire,” he wrote. “After justifying eighteen months of delay largely on the backbreaking effort required to review individual applications, distill common evidence, and ‘reach considered results,’ the Secretary has charged out of the gate, issuing perfunctory denial notices utterly devoid of meaningful explanation at a blistering pace,” he wrote.

Department spokeswoman Angela Morabito said on Tuesday the agency is studying the order. However, she contested the characterization it has denied claims. “Many are simply ineligible because the claimant wasn’t enrolled in an eligible program at an eligible date. Others [sic] claims don’t demonstrate financial harm. Just because a claim was filed does not make it valid and eligible for taxpayer-funded relief,” she said in an email. “The Department is following the publicly available process for resolving claims as quickly as possible, so those students who are eligible and were harmed get the relief they deserve.”

But Eileen Connor, legal director at Harvard Law School’s Project on Predatory Student Lending, which is representing the borrowers, took heart in the order. “The class members in this case have suffered harm at every turn, but in this court order they are finally seeing a change in the tides after years of waiting for justice,” she said in a statement.

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