Chipping Away at the Borrower-Defense Backlog

The Department of Education is continuing to address its backlog of claims from borrowers who contend they shouldn't have to repay their student loans, announcing Friday that it has delivered another $55.6 million in relief to students of three closed institutions that made "widespread, substantial misrepresentations" about their programs.

Over 1,800 claims were approved for borrowers who attended Westwood College, Marinello Schools of Beauty and the Court Reporting Institute. The borrowers will receive 100 percent loan discharges.

The department found that Westwood College misrepresented the ability of students to transfer their credits to other institutions, meaning that those who attended would have to restart their education somewhere else. Westwood also told students in its criminal justice program that they could find employment as police officers in Illinois, but the Chicago Police Department and other law enforcement agencies didn’t accept Westwood credits.

Students who attended Marinello Schools of Beauty said the institutions failed to train them in key elements of cosmetology -- like how to give haircuts. Marinello also left students without instructors for weeks or months at a time, the department found.

The Court Reporting Institute misrepresented the time it would take students to complete its program, and the majority of students who attended the institution never finished or became court reporters, according to the department -- only 2 to 6 percent of students actually graduated from CRI.

The latest approvals increase the amount of relief the department has provided to students with borrower-defense claims over the last several months, which now stands at more than $1.5 billion in total loan cancellation for close to 92,000 borrowers. In March, it provided $1 billion in debt forgiveness for borrowers who were previously granted only partial relief, and last month it approved claims for borrowers who attended ITT Technical Institute.

The Education Department is no longer processing borrower-defense claims as it did under the Trump administration, when the department calculated the amount of harm done to students by deceptive institutional practices and only provided relief proportionate to that harm. That approach has merit in theory but didn’t work in practice, adding to a backlog of claims, said Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators.

“What I see the Biden administration doing is coming in and acknowledging, ‘We are clearing the deck so these students have closure,’” Draeger said. “And simply forgiving the debt becomes the fairest thing that we could do, because otherwise, they're just hanging out there in this sort of perpetual limbo.”

The most recent data available show the department still had over 107,000 borrower-defense applications to review as of the end of April. Draeger said that as long as there continues to be a backlog, he expects the Biden administration will continue to move quickly to resolve claims. Secretary of Education Miguel Cardona reiterated that Friday in a release.

“The department will continue doing its part to review and approve borrower defense claims quickly and fairly so that borrowers receive the relief that they need and deserve,” Cardona said. “We also hope these approvals serve as a warning to any institution engaging in similar conduct that this type of misrepresentation is unacceptable.”

Notably, the department considered and mentioned the ownership of each of the institutions in its announcement. That hasn’t traditionally been done, said Julia Barnard, a researcher at the Center for Responsible Lending, noting that CRL was glad to see individual owners held accountable.

But the Biden administration could be doing more to help defrauded students, such as by providing group discharges for students who attended these institutions but didn’t apply for borrower defense to repayment, added Barnard.

“We're very happy that the Biden administration is now taking a proactive approach to discharges, but we think that this is a low bar, given that these are limited discharges for people who have the ability and means to file claims,” Barnard said.