Advocates Sue Secretary of Education Seeking Immediate Debt Relief for Students of Closed Colleges

Washington, D.C. - Today the National Student Legal Defense Network (NSLDN), on behalf of Housing and Economic Rights Advocates (HERA), filed a lawsuit demanding that the Department of Education immediately fulfill its legal obligations and discharge the loans of tens of thousands of students whose schools or campuses have closed. Housing and Economic Rights Advocates is a California-based non-profit organization that that provides legal aid and counseling for vulnerable student borrowers and other consumers.

Many borrowers who attended approximately 1,400 campuses that closed between November 2013 and November 2015 are now entitled to have their federal student loans immediately discharged without submitting an application, yet the Department is continuing to collect on their loans instead.

“Under current leadership, the Department of Education seems determined to deny student borrowers the financial relief to which they are entitled,” said NSLDN President Aaron Ament. “It has been nearly two years since these rules should have taken effect, and Secretary DeVos is still dragging her feet and hurting tens of thousands of borrowers through her inaction. The students we are trying to help have been doubly victimized – first by the for-profit colleges that deceived them, and now by the federal government that refuses to help.”

“There are very few resources available to student borrowers where they can get help understanding and obtaining their rights,” said Noah Zinner, HERA’s Managing Attorney. “As a result, many former students who should rightfully have had their loans cancelled are still unknowingly and needlessly struggling to pay them. Because the Secretary failed to honor common sense, already-in-place regulations for automatic discharge of loans the Department knows must be cancelled, many borrowers have struggled unnecessarily and the resources available to help them have been even more limited.”

Many for-profit schools close without warning after state or federal government investigations reveal they have been deceiving students to obtain federal funds, leaving students in debt and with nowhere to turn. Students who attend for-profit colleges are particularly vulnerable to ending up deeply indebted without a degree or education of value. According to federal data from 2009, nearly one-third of students who enrolled at a for-profit college, but did not complete their program of study, had federal student loans equal to or exceeding their annual income.

The Department of Education’s Borrower Defense Rule, a regulation finalized in 2016, instituted a provision known as Automatic Closed School Discharge – in short, the provision requires the Department to automatically discharge the loans of all eligible borrowers harmed by the abrupt closure of their school. The automatic aspect of the relief is especially important because students are often unaware of their rights – fewer than half of eligible borrowers affirmatively apply for relief.

Under Secretary DeVos, the Department delayed the July 1, 2017 implementation of the Borrower Defense Rule three times, and in September 2018, a federal judge held that the delays were unlawful, arbitrary, and capricious. After the judge’s order, the rule went into effect as if the Department’s illegal delays had never happened. Since that ruling, the Department still has not implemented the automatic discharge provision and continues collecting on loans that it is required by law to discharge.

Since November 2013 nearly 3,600 schools have either closed a campus or stopped operations entirely. In California, there are more than 160 schools where former students may already be eligible for relief under the Department’s 2016 rule. These include campuses of Corinthian Colleges, the University of Phoenix, DeVry University, and many others. In the next three years, students who attended an additional 325 California campuses will also become eligible.

NSLDN and HERA are demanding that the Department take immediate action, so that borrowers who have never been informed of their rights can receive the following benefits:

• Complete loan discharge: Borrowers who get a closed school discharge are no longer obligated to repay any outstanding loan principal, accrued interest, or collection costs.
• Refund of payments already made: Borrowers should be reimbursed for any and all payments made to date on the loan, including through wage garnishment or tax refund offsets.
• Federal aid eligibility: Borrowers should be made eligible for new loans and grants, including Pell grants.
• Clear credit history: Any adverse credit history due to the loans should be deleted by the credit reporting agencies.

The complaint filed in federal court is available here: 2018-11-13 HERA v DeVos Complaint.pdf

Housing and Economic Rights Advocates is a California statewide, not-for-profit legal service and advocacy organization dedicated to helping Californians — particularly those most vulnerable — build a safe, sound financial future, free of discrimination and economic abuses, in all aspects of household financial concerns. HERA provides free legal services, consumer workshops, training for professionals and community organizing support, creates innovative solutions and engages in policy work locally, statewide and nationally. Learn more at www.heraca.org