Colleges Confounded by Flood of Borrower-Defense Claims

Colleges and universities beyond the for-profit sector are seeing a rise in the number of borrowers alleging that they were misled or defrauded by their institution, as the Education Department works to clear a backlog in claims.

Under federal borrower defense to repayment rules, those who believe they were defrauded or misled by a college can file a claim seeking relief and potentially have their loans discharged. The department doesn’t publicly release information about the claims—and colleges aren’t eager to talk about them, either. The program was rarely used until 2015 and has mostly discharged the loans of students who attended for-profit colleges.

Now, community colleges, public research universities, religious colleges and other types of institutions are hearing from the Education Department that their students have filed borrower-defense applications. A lot of them, in some cases. According to higher education groups that are hearing from colleges about the claims, one flagship public university received 80 such notices in a day, while one midsize private college has gotten 30 in a day.

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“Most of the schools we’re talking about now have never seen a borrower-defense claim before,” said Jon Fansmith, senior vice president of government relations and national engagement at the American Council on Education. “It’s not like they get them once every few months, and now there’s a lot of them. Schools that have never gotten them before are now getting double-, sometimes triple-digit [numbers of] borrower-defense claims.”

As part of a class action settlement finalized last year, the department is under a court order to process applications for relief filed before Nov. 15, 2022, and faces a series of rolling deadlines by which it must make decisions regarding the claims. All the pending claims covered by the settlement must be resolved by July 2025.

Higher education lobbyists say it’s unclear how many of the notices are connected to older claims or ones recently filed. These notices have prompted confusion on campuses and a push from the higher education industry groups to get answers from the department. Colleges, they say, are being left in the dark on what the notices mean and how they should respond.

“The Department of Education is not helping institutions here,” Fansmith said. “They’re causing more chaos on campuses than I think is probably necessary and a little bit of additional information could help alleviate.”

Under the settlement reached last year in the class action lawsuit, Sweet v. Cardona, that accused the department of ignoring the applications, the agency agreed to discharge $6 billion in student loans and use a more streamlined process to process pending claims. About 60,000 claims are still pending, according to an August update.

The borrower-defense regulations have been updated three times in the eight years, the groups say, so more information would be helpful in navigating which processes to follow for which claims. The most recent update to the rules, finalized in July, has been put on hold by a federal judge.

Department officials have indicated to some groups that more information is forthcoming. In the meantime, the associations are working to provide some answers.

Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators, said the notifications arrived on campuses without any context or heads-up from the department.

“All of a sudden, they just started getting these notifications about individual claims, and they had not received any type of more general information about why are we getting these now, do we have to respond, what do we do with this and what does this mean?”

The notices just indicate that a claim has been filed and that the department is processing it. If the department does approve a claim for relief, the agency can seek to recoup the cost of that claim from the institution itself, but that’s under a separate process.

“So it’s not like ‘speak now or forever hold your peace,’” McCarthy said in a recent episode of NASFAA’s podcast, Off the Cuff.

An Education Department official said in a statement that the agency is "notifying postsecondary institutions about pending borrower defense claims against those institutions as required under the 2016 borrower defense to repayment regulations," as part of its ongoing borrower defense to repayment work

"The department is providing institutions the opportunity to respond with information that would be helpful in reviewing the claims," the statement said.

For institutions that aren’t accustomed to receiving them, Fansmith said, the notices can be scary and confusing. “Any time an institution gets the communication from a federal agency, it gets treated with all the seriousness it deserves,” he said. “It’s a statement almost always from former students alleging your institution defrauded them or provided a substantial misrepresentation. Those are pretty serious allegations.”

But Fansmith said that most of the claims he has seen don’t look “to have a lot of merit on their face.”

“It doesn’t really matter whether I think they’re important or not,” he said. “If you’re on a campus and you get one of these, especially if you’re getting 30 of them or 50 or over 80 of them, you’re going to be worried, and the resources involved, understanding how to respond—it’s real money.”

McCarthy said she didn’t think the uptick in claims represented a “new normal” for institutions—rather, it’s just a matter of the department catching up on notifying institutions about claims. Similarly, Fansmith said that the recent increase in claims doesn’t mean that the borrower-defense program is becoming a popular way to obtain student loan forgiveness.

“There’s too many safeguards in place, regardless of the version of the rules you’re looking at, for this to really get widespread adoption,” he said.

Advocates for student loan borrowers are skeptical of the idea that borrowers are filing baseless claims. They say the application process is complex and that borrowers are filing under the penalty of perjury.

In the borrower-defense program, the agency can grant relief if students were misled about their educational program or loan by their institution and harmed by it. “I think if traditional higher education institutions within this sector don’t want to hear about claims that they’ve committed misconduct against their students, they should think twice about some of the tactics that they’re using,” said Eileen Connor, president of the Project on Predatory Student Lending, which represented borrowers in Sweet v. Cardona.

McCarthy said that these notices and the opportunity to respond are “a relatively new phenomenon.” Previously, institutions weren’t notified when claims were filed against them, but institutional representatives wanted to receive such notifications and argued for that change during the rule-making process so they would be looped in when a borrower applied for relief via borrower defense.

Some of the claims McCarthy has reviewed are years old, which she said indicates that the department is working through the backlog. But the recent restart of student loan payments and the media coverage around debt cancellation could have led to more claims for relief, she added.

The quantity of notices and the claims themselves are concerning to institutions in part because the department isn’t prescreening the applications for merit or completeness before sending the notices, McCarthy said. That means the institutions could respond to claims that the department later decides aren’t valid—another reason why college administrators are confused about what next steps to take.

The department has told NASFAA that responding to the claims is optional and that not responding won’t be viewed as automatically favorable for the borrower. Other higher education associations have said that institutions should be prepared to respond to every claim.

“In no way questioning the good faith of the Department of Education here,” Fansmith said on a recent episode of ACE’s podcast, dotEDU. “But the people we have talked to said [not responding is] a very risky approach, and you should always, in anything like this, talk to your general counsel.”