Today the Department of Education’s Special Master, Joseph A. Smith, released his long awaited third report on the status of providing relief to defrauded federal student loan borrowers. While we are encouraged to see that the Department has approved slightly over 2,000 borrowers for discharge of their student loans based on misrepresentations about job placement rates at certain Corinthian programs at Heald, Everest, and Wyotech campuses, we continue to believe that these numbers are far too low and that the process is taking too long.
Unfortunately, in the ten months since the appointment of the Special Master, the Department has yet to review and act on any of the applications of the many borrowers who are not covered by the Department’s current findings of school misconduct. This includes many borrowers who reported that they took out loans after being lied to about job placements, cost of attendance, qualifications for job licensure, and other important aspects of school programs. The Department has also failed to act on or explain how it will treat applications from the many harmed borrowers with FFEL loans. While we appreciate that the Department needs to establish an appropriate process for evaluating these applications (and we’ve previously written about our recommendations for the process), struggling borrowers are waiting for the relief to which they are entitled.
The report also indicates that most borrowers who are covered by the existing findings of misconduct are not yet getting relief. For example, the Department has identified over 54,000 Heald borrowers who should be eligible for relief under its findings of misconduct, yet fewer than 2,000 such borrowers have had their loans discharged through the borrower defense process. While the Department has stepped up its outreach, these efforts are falling short of meeting the goal of providing relief to all defrauded borrowers. The Department’s plan of coordinating with servicers to advise borrowers of their eligibility for relief would be an important step in the right direction, but we need more information about what it is planning and recommend the following:
- Because many borrowers are being inundated with deceptive emails from scam debt relief companies and may not trust emails about discharge, loan servicers should include written information about debt relief options in the monthly payment statements to all former Corinthian borrowers.
- The Department’s collection agencies should inform borrowers in default of their eligibility for discharge, including with all written demands for payment.
- The Department should identify all borrowers potentially covered by the Department’s recent findings and require servicers and collection agencies to include the applicable attestation form with monthly statements or demands for payment sent to these borrowers.
- The Department should ensure that borrowers who speak with loan servicers or debt collectors by phone are informed about debt relief options and how to apply. Right now, we are hearing that Corinthian borrowers who tell their servicers that they believe they were defrauded are not receiving this information.
Additionally, the Department should commit to halting involuntary collection of the loans it has already determined are eligible for discharge. When the Department knows a loan is dischargeable based on school misconduct, seizing the victims’ tax refunds or garnishing their wages or benefits is unnecessary and unjust.
Ultimately, if the Department knows that a borrower took out a loan to attend a school that was lying about key aspects of the program, and that the borrower is eligible for relief, the Department should simply discharge the loan.