Press Release  AG Healey to Betsy Devos: Follow Federal Court Order, Discharge Loans for Tens of Thousands of Eligible Students

Boston — Massachusetts Attorney General today led a coalition of 21 states with California Attorney General Xavier Becerra, demanding that the U.S. Department of Education immediately discharge the student loans of eligible borrowers who attended predatory for-profit schools that closed while they were enrolled mid-program.

Today’s letter follows a successful multistate effort led by AG Healey to save critical student loan protections. On Oct. 16, a federal judge rejected a challenge to the Borrower Defense Rule, ordering its immediate implementation for students nationwide.

The attorneys general have demanded that Education Secretary Betsy DeVos follow the recent court order and fulfill her obligation under federal law to provide immediate and automatic loan relief to borrowers who attended a school when it closed on or after November 1, 2013, and who did not subsequently re-enroll in an eligible program within three years from the date the school closed. It is estimated that under federal law, tens of thousands of students nationwide who attended any of the 1,400 schools that closed in 2014 and 2015 – including Corinthian Colleges – are eligible for approximately $400 million in automatic debt relief.

“With the Borrower Defense Rule now in place, Secretary DeVos has no legal basis to delay giving students and families the relief they deserve,” AG Healey said. “The Department of Education should discharge these loans immediately and without exception for tens of thousands of students that have been stuck with this unaffordable debt for far too long.”

Students may be eligible for automatic closed-school debt relief if they did not complete the program of study at a school either because the school closed while they were enrolled, or because they withdrew not more than 120 days before the school closed. For example, when Corinthian shut down in April 2015, it left approximately 16,000 students displaced nationally. Many of these students are now immediately eligible to have their federal student loans automatically forgiven, to receive a refund of all repayments amounts, provided they did not enroll in a title IV-eligible program within three years from the date the school closed, and to have their credit repaired.

In November 2017, AG Healey informed the U.S. Department of Education that it had systemically failed to provide full credit repair when granting closed school discharges to applicants. Specifically, the Department failed to request that prior servicers remove negative credit reports when loans were discharged after default. Following the AG’s letter, the Department agreed to correct the credit reports of borrowers who received closed school discharges, and to implement changes to ensure full credit repair for borrowers who receive closed school discharges in the future. 

Separate from school closures, students defrauded or cheated by their school may also be eligible for loan relief based on a federal program known as “defense to repayment.” This program gives victimized students the opportunity to have their federal student loans forgiven. When students submit a borrower-defense claim, they can request to have their loans placed in forbearance and to halt collection attempts, even on defaulted loans.

The Borrower Defense Rule was finalized by the Obama administration in November 2016 after nearly two years of negotiations, following the collapse of Corinthian Colleges, a national for-profit chain. AG Healey’s Office had an active role on the Department of Education’s negotiated rulemaking committee that helped develop the Borrower Defense Rule which was set to go into effect on July 1, 2017. In May 2017, Secretary DeVos announced that the Department was reevaluating the Borrower Defense Rule and later announced its intent to delay large portions of the Rule without soliciting, receiving, or responding to any comment from any stakeholder or member of the public, and without engaging in a public deliberative process. The Department simultaneously announced its intent to issue a new regulation to replace the Borrower Defense Rule.

In response, AG Healey, along with 19 other state attorneys general, filed a lawsuit in July 2017, including a related case brought by Public Citizen and the Project on Predatory Student Lending on behalf of two students who attended the now-bankrupt New England Institute of Art, a for-profit school in Brookline, Massachusetts. AG Healey and the students alleged that the U.S. Department of Education violated federal law by abruptly rescinding its Borrower Defense Rule which was designed to hold abusive higher education institutions accountable for cheating students and taxpayers out of billions of dollars in federal loans.

Massachusetts borrowers who are looking for student loan help or information should visit the AG’s Student Loan Assistance page or call the Student Loan Assistance Unit Hotline at 1-888-830-6277.

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