News : Inside the deal that could revamp loan forgiveness for defrauded borrowers

Tuesday, July 5, 2022

Inside the deal that could revamp loan forgiveness for defrauded borrowers

Jul 05, 2022

INSIDE A LANDMARK SETTLEMENT OVER STUDENT LOAN FRAUD CLAIMS: A federal judge later this month will hear arguments on whether to approve a sweeping class-action settlement that would provide billions of dollars in loan relief for borrowers who say they were defrauded by their college.

— The stakes are high for hundreds of thousands of borrowers — some of whom have been waiting for years for the Education Department to respond to their claims.

— But the settlement, if approved, will also chart the future of a major federal student loan relief program known as borrower defense, which has vexed three presidential administrations.

Education Secretary Miguel Cardona speaks in the East Room of the White House.

Education Secretary Miguel Cardona speaks in the East Room of the White House in Washington, April 27, 2022. | Susan Walsh/AP Photo

— The deal, announced last month, had been in the works for months. Attorneys representing the borrowers — Harvard Law School's Project on Predatory Student Lending — began negotiating with the Biden administration in May 2021, according to court filings. The class-action lawsuit, filed in 2019, challenged the department's handling of "borrower defense," first under then-President Donald Trump, then under President Joe Biden.

— The Biden administration has taken heat from progressives for not moving more swiftly and aggressively to wipe out loans owed by borrowers who say they were defrauded by their college. But the settlement creates a path for the Biden administration to clear the massive backlog of claims — as it prepares to formally propose its own new regulations for the program in the coming days.

— Here's how the class-action settlement would work: About 200,000 borrowers attended certain for-profit schools listed as eligible for automatic loan forgiveness — totaling at least $6 billion.

— The remaining 68,000 borrowers with claims against other for-profit schools would have their applications decided individually. But they would be placed on a fast-track process, and the Education Department has agreed to presume their claims are true without requiring additional evidence.

— The Biden administration also agreed to a special process for individuals who file new borrower defense claims in the coming weeks. Borrowers who file a claim after June 22 — but before the judge finalizes the settlement — are guaranteed to have their applications decided within three years. If the department hasn't ruled on their claim by then, they'll automatically receive full loan forgiveness.

— That provision has already spurred a huge influx of new applications. The Education Department has received more than 60,000 new borrower defense applications in just over a week since the settlement was announced, according to a department spokesperson. (By contrast, the agency received about 100,000 claims in all of 2021.)

— A key part of the deal is the list of 150 for-profit colleges (owned by 50 different companies) that triggers full loan forgiveness for the 200,000 borrowers. The Biden administration said in court filings that schools were included on the list "based on strong indicia regarding substantial misconduct" that was "credibly alleged or in some instances proven."

— For-profit colleges on the list are looking at options to block or alter the settlement, including intervening in the class-action lawsuit, according to several people familiar with industry discussions.

— Colleges are worried about the reputational harm of being named on the list. They're also concerned that an approved borrower defense claim, even as part of a settlement, could trigger additional regulatory problems — from the Education Department, state authorities or accreditors.

— Grand Canyon University, which is in a separate battle with the Education Department about its for-profit status, is among the largest schools on the list. "While GCU takes no position on the settlement itself, we reject any inference of misconduct or wrongdoing stemming from the settlement, particularly given the absence of any opportunity for GCU to be heard or to challenge the allegations against it," the university said in statement.

— Jason Altmire, president of Career Education Colleges and Universities, said in a statement to POLITICO that the group is "exploring all legal options." He said that "CECU is especially concerned with the threat of potential due process violations and the public harm that will result from the proposed settlement if approved."

— What's next: Judge William Alsup, a Clinton appointee who has been overseeing the case, will hold a hearing July 28 to discuss preliminary approval of the settlement. Alsup previously expressed frustration with the the Biden administration's slow pace in processing borrower defense claims. He was even more critical of the Trump administration's handling of the program, which he said at one point was "disturbingly Kafkaesque."

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Happening Today

HARRIS TO ADDRESS NEA TODAY: Vice President Kamala Harris later today will deliver remarks at the National Education Association's annual meeting in Chicago.

Education

WHAT WE LEARNED FROM DEVOS' BOOK: Betsy DeVos is out with a new book that chronicles her contentious tenure as then-President Donald Trump's education secretary. Here are some passages that stood out to us from "Hostages No More: The Fight for Education Freedom and the Future of the American Child":

— On resigning in the wake of Jan. 6: "My breaking point came when President Trump did not do what only he could do: call off the mob that was ransacking the Capitol building." DeVos said she discussed with fellow Cabinet colleagues the idea of removing an "increasingly erratic and unnerving" Trump from office — but resigned when Mike Pence made clear he wasn't on board. "I respected his decision, but I told him I couldn't just stand by and do nothing," DeVos says of Pence. "He said he respected that, in kind."

— DeVos writes she hasn't spoken to Trump since resigning from his administration: "I didn't get to speak to the president, and haven't since."

President Donald Trump listens as Secretary of Education Betsy DeVos speaks during a roundtable discussion on the Federal Commission on School Safety report.

In this Dec. 18, 2018, photo, President Donald Trump listens as Secretary of Education Betsy DeVos speaks during a roundtable discussion on the Federal Commission on School Safety report. | Evan Vucci/AP Photo

— Teachers unions, not surprisingly, are DeVos' main antagonist throughout the book. But she also takes aim at the Trump White House for constant missteps — bungling the messaging around children and Covid-19, imposing purity tests on staffers she hired and blunders like proposing to eliminate federal funding for Special Olympics. She also faults a "dysfunctional White House" after the 2020 election for not fighting to include a school choice proposal as part of Covid relief legislation.

— DeVos says she blocked a White House plan, developed by Trump adviser Stephen Miller, to send ICE agents into schools: "The plan was, when agents checked students' citizenship status for the alleged purpose of identifying gang ties, they could identify undocumented students and deport them. Not only was the prospect of this chilling, but it was also patently illegal." DeVos writes that she and her staff shot down the idea.

— Trump personally cheered on DeVos' overhaul of Title IX policies, she writes, even as some White House advisers urged delay after the Brett Kavanaugh hearings: "When I went in to seek the president's approval on the final rule, I presented it as a victory for due process. President Trump congratulated me and my team, noting he had twice been falsely accused of sexual misconduct. Once again, he seemed to only be able to understand the issue through the lens of his own experiences, but he said the words I needed to hear: 'It's so right. Go ahead and do it.'"

— DeVos worried Trump might endorse student loan forgiveness in 2020. Trump, she writes, "was not immune to the politics of student loans," adding that he "did not take the time to understand" the complicated policy behind the "sunny rhetoric" of debt relief. "As the campaign for the 2020 election intensified, he was more and more tempted to pander to borrowers by promising loan forgiveness," she writes.

— DeVos agrees with liberals about systematic racism in education. "America is not a racist nation," she writes. "But in one important area — education — we do have a system that is institutionally racist against blacks and other minorities. … The education establishment's solution has been to spend more and more money funding the same failing system. … Our solution was to do something different, to stop perpetuating a systemically racist system by giving black and brown parents the opportunity to escape it."

— DeVos says school choice, not curriculum bans, should be conservatives' solution to teachings on race and other issues they oppose: "The answer isn't to ban critical race theory in schools, as many state legislatures have tried to do," she writes. "Ideas can't be banned, even noxious ones. And reflexive anti-Americanism is going to continue to be present in some schools no matter what state legislatures decree."

— DeVos says the threats against her — which prompted an unprecedented 24/7 security detail from the U.S. Marshals — were "deeply unsettling" to her and her family. "People threatened me with murder. Kidnapping. Rape. Torture. At times there were thousands of threats — they escalated after I received heavy media coverage," she wrote, adding that "at any given time there were a dozen or so threats the Marshals took seriously enough to investigate, talk to the people, meet with them, and even make arrests."

K-12

CARDONA SOFTENS CHARTER SCHOOL POLICY AMID PUSHBACK: The Biden administration is easing its proposed new rules for federal charter school grants, a move that won praise from some opponents who had blasted earlier plans to change how charters apply for millions of dollars in federal assistance. The Education Department previewed on Friday its new plan, which scales back some controversial requirements for charter schools that had infuriated charter supporters. Juan Perez Jr. has more.

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