Just before President Barack Obama left office, he made it easier for students defrauded by for-profit colleges to apply for the federal debt relief they had long been entitled to.
But the Trump administration, which disagrees with the policy, allowed a massive backlog of more than 200,000 claims to pile up – leaving some borrowers waiting throughout the entire administration to hear whether they’ll get a break.
Now, they’re pinning their hopes on President-elect Joe Biden to fix the mess. While more progressive members of his party are pushing for broad student debt cancellation, it’s more likely that he’d provide more targeted help for defrauded students within his first 100 days.
Biden’s Department of Education could promptly provide relief to tens of thousands of those borrowers using its existing authority, according to a report from the National Student Legal Defense Network. Payments for all federal student loan borrowers are currently frozen, but that pandemic relief benefit is set to end January 31.
Despite the forthcoming change in administrations, the future remains uncertain for borrowers like Rebekah Sanchez Norton. She applied for relief before President Donald Trump was sworn in, but the fate of her $180,000 student debt is still unclear.
“As each year went by, I became a little less hopeful. I feel like I’ve lost my faith in the government,” said Sanchez Norton, who received a photography degree from the now-defunct Brooks Institute in California.
She and others say the school misled them with inaccurate claims about graduates’ salaries and job placements. Sanchez Norton’s credits weren’t accepted by California state colleges when she returned to school after failing to find a high-enough paying job. She’s now a licensed mental health counselor.
Sanchez Norton, who was a single mom at the time she attended Brooks Institute, says her debt not only devastated her finances but also strained family relationships. Her loan payments are paused due to pending litigation but the interest still accrues and she can’t get approved for a car loan or a mortgage with her high debt-to-income ratio.
“The rule from the Obama administration seemed like it really acknowledged that there are schools out there preying on students. But now it feels like the government is saying what happened is OK and doesn’t care about the financial and emotional devastation a lot of us faced for many years,” Sanchez Norton said.
Zero applications processed for more than a year
Students misled by a college with false claims about things like job prospects are legally eligible for debt relief. The idea is that if they didn’t get the education they were promised, they shouldn’t have to pay back their federal student debt.
The Obama-era rule, known as Borrower Defense to Repayment, clarified the process for those seeking relief. The number of these applications soared as the Obama administration cracked down on for-profit colleges.
The rule has been in limbo throughout the entire Trump administration. For about 15 months between 2018 and 2019, zero applications were processed while the total pending grew at one point to more than 200,000.
While borrowers have waited for a ruling, Education Secretary Betsy DeVos made it clear that she thought the Obama-era rule was “bad policy” that puts taxpayers on the hook for the cost of the debt relief without the right safeguards in place to determine who is eligible.
She first attempted to delay the rule from officially taking effect, a battle she lost in court. Then she rewrote the rule so that it would offer only partial forgiveness to some borrowers. There were plenty of critics of DeVos’s rewrite, including Republicans. The House and Senate voted to overturn the rule, but the resolution was vetoed by Trump.
Judge: Denials are ‘Kafkaesque’
This past April, the administration finally agreed to process the pending applications within 18 months as part of a settlement agreement in a class action lawsuit over the stalled claims brought by Harvard’s Project on Predatory Student Lending.
The department sped through 74,000 over the summer – yet rejected 94% of the claims without much of an explanation.
That prompted US District Judge William Alsup to reject the settlement agreement in October. He called the denials “Kafkaesque,” nothing that after months of delay, DeVos had begun issuing “perfunctory” form denial notices at “breakneck speed.”
“All may not be entitled to relief, but all are entitled to a comprehensible answer,” Alsup wrote.
The Department of Education has now stopped issuing blanket denials and put all the borrowers who already received one back into administrative forbearance – and back into flux. A spokeswoman for the department declined to comment for this story because it involved pending litigation.
After three and a half years without hearing anything about her claim, Sanchez Norton was one of those borrowers who received a denial over the summer.
After submitting dozens of documents to show Brooks Institute misled her, she said it “felt so callous” to receive a denial letter that looked like thousands of others. Despite the judge’s rejection of the settlement, she’s given up hope that she’ll receive any debt relief at this point.
130,000 people waiting for a ruling
More than 131,000 borrowers have been denied, but another 130,000 were still pending as of September, the most recent available data. About 61,000 people have received some debt relief valued at $563 million since 2016.
There have been so many legal challenges that it’s been hard for borrowers to keep track, and the Department of Education has further complicated things by not always doing what it says it would. In 2019, for example, it was found to have been illegally collecting on more than 30,000 loans while the rule was litigated in court – forcing a judge to hold the department and DeVos in contempt of court.
“I think I have developed some kind of anxiety over this. I’m constantly reading articles about it,” said Morgan Marler, who applied for loan forgiveness three years ago.
She belongs to one of several Facebook groups where borrowers post updates from lawyers, news articles, notices from loan servicers and generally commiserate.
Marler had trouble finding a job when she graduated from ITT Tech with an associate’s degree in information technology in 2016. Soon after, the Department of Education pulled the plug on ITT Tech’s federal funding because it failed to address its accreditor’s concerns. The school closed its doors two months after she finished, casting doubt on the quality of her degree.
Other schools won’t accept her credits from ITT Tech and she’s too scared to take on more debt to earn another degree. Instead, her husband decided to rejoin the Army and she stays home to take care of their 6-year-old daughter, who was just 3 years old when she applied for the debt forgiveness.
Biden administration could change the rule back
Even if the borrowers’ lawsuits aren’t successful, it’s possible the Biden administration will make it easier for defrauded students to seek debt relief again.
Rewriting the entire rule again could take time. But there are some things Biden could do more quickly. Currently, some students qualify for automatic loan forgiveness if their school closes. The administration could extend that eligibility to borrowers like Marler, who finished before the school shut down.
Progressive Democrats, including Senate Minority Leader Chuck Schumer, are already pressuring Biden to go further, calling on him to cancel $50,000 in student loan debt for every borrower.
But Biden may be reluctant to wipe away debt unilaterally and prefer it come from Congress – which will remain divided unless Democrats sweep two runoff Senate elections in Georgia on January 5.
Biden has sidestepped questions about whether he would use executive power to forgive student debt. Instead, he expressed support for a pandemic related stimulus proposal passed by the House earlier in the year, which called for canceling $10,000 in student debt per borrower.