April 5, 2022
Honorable Miguel Cardona
Secretary
United States Department of Education
400 Maryland Ave, SW
Washington, DC 20202
Dear Secretary Cardona,
I would like to bring your attention to an important matter.
Since the 1990s, the Department of Education has had administrative remedies to repay student loans for borrowers that may have been defrauded by the school a person choose for her or his post-secondary education.For decades this remedy was implemented with extreme rarity until the Obama Administration expanded its use to target for-profit schools. Mean while similar cases of fraud at other public and private schools went entirely without Department action.
The February announcement by the Administration that more than $415 million in student debt would be cancelled from for-profit colleges from student borrowers who say they were harmed suggests that the current Department of Education is following the exact same troubling trend.[1]
Most students, particularly those at public and private colleges and universities, have never heard of the Borrower Defense to Repayment rule (BDR). A survey conducted by my organization, Consumer Action for a Strong Economy (CASE), found 97 percent of students at the nation’s five largest online public and private colleges did not know about the borrower defense to repayment program, even though 82 percent said they believe their school mislead them.[2]
As you know, BDR evolved out of the formation of the Federal Direct Loan Program. Before the Department of Education served as guarantor on loans issued by private banks, the Direct Loan Program established the Department as the loan issuer. Today, all federal student loans are administered by the Department of Education.
The Direct Loan Program gave the Department of Education more control over post-secondary education funding. In 1994, Republicans in Congress unsuccessfully sought to eliminate direct lending and, in 1997, passed a measure that prohibited the Department of Education from encouraging or requiring colleges to switch to the direct loan program, which had been phased in by the Clinton Administration.
Participation in the Federal Direct Loan Program steadily declined over the subsequent decade, which reached its lowest level of total student loan volume in 2007.[3] In 2010, President Barack Obama signed a law that eliminated the Federal Family Education Loan program, which provided incentives to private lenders. All federal student loans since have been made under the Direct Loan Program.[4]
In 1994, the Department did not have time to seek public input on all facets of the Direct Loan Program when it was introduced.[5] The BDR rule was written as a measure to give the Secretary of Education discretion to forgive student loans. Another advisory committee then reviewed the rule in 1995, but no changes were made.[6]
Despite vast room for interpretation, the BDR remained a largely unused and obscure subsection of the Direct Loan Program for several decades. Then, the Obama Administration used its discretion to target student loans for repayment only from for-profit colleges.[7] In fact, at the time your Department used significant federal resources to target these institutions exclusively.[8]
According to recent media reports, the Department has amassed approximately 88,000 BDR claims. Furthermore, recent announcements by the Department and public statements by Department officials indicate that thousands more claims are pending approval. Fraud is fraud, and we strongly support protections for student loan borrowers who have been victims of legitimate misrepresentation and fraudulent behavior. However, there is concern that the Department may be bending the BDR rules to maximize student loan relief while arbitrarily applying different standards of adjudication based upon the control of the institution. Thus, in accordance with the Freedom of Information Act, we request the following information regarding how BDR claims are being addressed in a manner consistent with the law and pertinent federal regulations:
- Please provide a listing of the total number of Applications for claims received by the Department since 2000, including:
a. The total number of claims received for each institution;
b. The total number of outstanding claims for each institution;
c. The total number adjudicated claims for each institution categorized by the total number granted, partially granted, or denied. - For each of the categories listed in 1.a. – 1.c., please indicate under which of the three BDR standards applies to each claim.
- For each of these categories include the number of claims that were previously denied, but which were subsequently granted, partially granted, denied or remain pending based on reconsideration.
- Please Explain the process for reconsideration — what specific standards must apply for a previously denied claim to be reconsidered?
Thank you,
Gerard Scimeca
Chairman
Consumer Action for a Strong Economy (CASE)
[1]https://abc7.com/student-debt-forgiveness-biden-administration-devry-university-loan-relief-college-students/11575793/
[2]https://www.collegeloanfairness.com/case-survey-results/
[3] https://www.newamerica.org/education-policy/topics/higher-education-funding-and-financial-aid/federal-student-aid/federal-student-loans/federal-student-loan-history
[4]https://www.govinfo.gov/content/pkg/PLAW-111publ152/pdf/PLAW-111publ152.
[5]https://www.newamerica.org/education-policy/edcentral/borrower-defense
[6]https://www.govinfo.gov/content/pkg/FR-1995-07-21/pdf/95-17988.pdf
[7]https://www2.ed.gov/documents/press-releases/report-special-master-borrower-defense-1.pdf
[8]https://www2.ed.gov/documents/press-releases/report-special-master-borrower-defense-4.pdf
