Education Department's Special Master Delivers Fourth Report on Debt Relief Process for Student Borrowers

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Education Department's Special Master Delivers Fourth Report on Debt Relief Process for Student Borrowers

Federal Student Aid Enforcement Unit to Assume Borrower Defense Process Oversight
June 29, 2016

As part of the Obama Administration's continued commitment to ensure that defrauded students have a path to debt relief with minimal burden, Special Master Joseph A. Smith has delivered his fourth and final borrower defense progress report to the U.S. Department of Education.

"Joe has shown tremendous leadership, thoughtfulness and insight during his tenure as Special Master," Under Secretary of Education Ted Mitchell said. "All of us at the Department are grateful for his diligence in support of our efforts to provide debt forgiveness to students who have been mistreated and defrauded by predatory institutions."

The report details the numbers and status of borrower defense claims and the Department's continued efforts to reach former Corinthian College students who may be eligible for relief based on Department findings of school misconduct. Additionally, the report describes the creation of a new application form to facilitate borrower defense discharge claims. The Department's Student Aid Enforcement Unit, located within Federal Student Aid (FSA), will oversee the borrower defense program, and will continue to provide periodic progress reports. The Enforcement Unit was established in February to respond more quickly and efficiently to allegations of illegal actions by postsecondary institutions. All reports will be made public.

As of June 24, the Department had received 26,603 borrower defense claims, 87 percent of which were from former Corinthian students. To date, nearly 4,000 borrower defense claims from former Corinthian students have been approved for discharge, with combined outstanding loan balances of $73 million. Additionally, closed school discharge has been granted to 7,386 former Corinthian students with combined outstanding loan balances of $97,613,525.

The Department appointed Smith a year ago to create a fair and efficient process for reviewing borrower defense claims. Since that time, Smith, a longtime advocate for consumers and taxpayers, has delivered three reports to the Department.

In his first report, Smith discussed the legal and regulatory basis for the Department's approach to borrower defense and his process to evaluate borrower defense claims. His second report outlined the Department's progress in granting borrower defense and closed school relief to eligible student loan borrowers, the standards under which borrower defense relief had been granted to date, and the steps being taken to develop additional rules under which further relief could be granted. Smith's third report outlined the Department's approval of loan discharges for more than 8,800 former Corinthian students nationwide, totaling more than $130 million.

"I leave my engagement as Special Master with a profound sense of gratitude for the opportunity to have worked with the Department's extraordinarily talented and hardworking staff on matters of critical importance to borrowers," Smith said in the report. "I am confident that the creation of the Enforcement Unit and growth of the borrower defense program," he later added, "will go a long way toward ensuring that the federal student loan program does what it was designed to do: help students build a better life for themselves, their families, and the nation."

Creation of a Universal Borrower Defense Form

In an effort to standardize and simplify the borrower defense application process, the Department has developed a proposed "universal" borrower defense application form that is now available for public comment. All students who wish to submit claims for loan discharge will be able to use this form, regardless of the school attended or alleged bases for borrower defense relief.

"You shouldn't need an attorney to seek the relief you're entitled to—it should be as transparent and simple as possible," Mitchell said. "Using valuable input from student advocates, we created this form to simplify the process for borrowers who believe they were defrauded by their school. We hope that borrowers and advocates will share their thoughts on how we can make it even better."

Once finalized, this form will serve as the single intake point for future borrower defense claims not covered by other school or program-wide findings.

Continued Outreach to Eligible Borrowers

The Department continues to expand its outreach efforts to Corinthian borrowers. The Department is working closely with state Attorneys General, many of whom will assist with reaching borrowers who may be eligible for borrower defense relief. Additionally, the Department is preparing to launch both servicer and social media outreach pilots to test whether they are effective means to reach potentially eligible borrowers.

Protecting Students from Abusive Career Colleges

Throughout the Obama Administration, the Department has taken significant steps to protect students and safeguard taxpayer dollars by:

  • Publishing proposed regulations that clarify, simplify, and strengthen existing regulationsto grant students loan forgiveness if they were defrauded or deceived by an institution, hold financially risky institutions accountable for their behavior and prohibit the use of so-called mandatory pre-dispute arbitration clauses and class action waivers that deny students their day in court;
  • Creating Gainful Employment rulesto protect students and taxpayers and to ensure students receive an education that leads to good job prospects;
  • Establishing tougher program integrity regulations to target misleading claims by colleges and incentives that drove sales people to enroll students through dubious promises, require states to step up their oversight, and to ensure that only eligible students or programs receive aid;
  • Strengthening oversight and compliance of the career college industry through an inter-agency task force;
  • Protecting military service members, veterans, and their families from predatory actions by for-profit colleges by proposing to strengthen the 90/10 rule; and
  • Calling for improved accreditation practices that focus on student outcomes.

The Special Master's reports can be accessed here: